Refining margins have been very weak and discretionary runs cuts have been instituted in Europe and Asia, which, along with planned maintenance, will support a degree of recovery.
New York, NY (PRWEB) May 21, 2013
NYC-based PIRA Energy Group believes that fundamentals are supportive of crude prices and refining margin recovery. On the week, total U.S. oil commercial inventories built, while the year-on-year surplus slightly narrowed. In Japan, runs declined as crude imports plunged on the week. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
*Asian Fundamentals Supportive of Crude Prices and Refining Margin Recovery
Refining margins have been very weak and discretionary runs cuts have been instituted in Europe and Asia, which, along with planned maintenance, will support a degree of recovery. Even so, a refining capacity overhang exists, which will keep margin improvement below levels seen last summer.
*Crude Stocks Tighten Even as Total Product Surpluses Grow
Total U.S. oil commercial inventories built for the week ending May 10, while the year-over-year surplus narrowed slightly. Crude stocks posted the first draw in a month, narrowing the crude stock surplus to roughly the amount of incremental barrels required for year-on-year infrastructure growth. The four major refined products built as did the year-on-year surplus.
*Japanese Crude Imports Plunge and runs Decline
While runs in Japan declined the week ending May 11, crude imports plunged sufficiently low to produce a large crude stock draw. Post Golden Week gasoline demand dropped back and gasoil demand rose slightly. There were small stock builds in both gasoline and gasoil. Kerosene refining margins have begun to show modest improvement but are still weak.
*Floor Rising But Downward Pressures Remain
Rising costs for both shale and offshore deepwater oil developments may serve to provide a higher level of support for longer-term prices. However, while the medium term oil price floor may be rising, the risks of a squeeze on Saudi production over that same time period that could drive prices below $100/barrel have risen as well. In the case of North American natural gas, recent developments are consistent with the emergence of the next generation of demand (e.g. transport and LNG) building blocks PIRA expects.
*The North American Shale Crude Boom is Causing a Shift in Global Waterborne Oil Trade from Crude to Products
The rapid growth in North American crude oil production is causing significant changes in international crude and product trade flows but with differing impacts. Crude oil waterborne flows are expected to contract as the U.S. becomes less reliant on crude imports as domestic production and pipeline imports from Canada continue to rise. Waterborne product trade, on the other hand, is expected to grow annually from 2012 to 2020 with much of this originating from the U.S. which is shifting from being a major product importer to an exporter of finished products.
*LPG Key Steam Cracker Feed Internationally
U.S. steam cracker operations continue to generate a favorable gross margin, although not as high as earlier this year. Ethane remains the favored feed, with propane and butane lagging behind. LPG continues to be utilized for the cost advantage it provides over naphtha especially in Europe, but is also finding extensive usage in Asia. The U.S. is becoming a more important source of propane to international markets, as its export capability has increased sharply, with more terminal capacity due later in the year.
*Profitability of Ethanol Manufacture Rises
Weekly average U.S. manufacturing margins soared to the highest level in 18 months the week ending May 10, as average ethanol prices were higher despite lower average corn costs. Prices for D6 RINs, essentially for grain-based ethanol, rose and are likely to approach the $1 level again this summer as demand increases.
*Output of Ethanol-Blended Gasoline Rises
U.S. ethanol production rebounded to 857 MB/D the week ending May 10, matching the highest output of the year reached two weeks earlier. Inventories declined to 16.4 million barrels, the lowest since December 2010. Ethanol-blended gasoline manufacture rose to a nine-month high of 8.49 MMB/D from 8.40 MMB/D in the prior week, as total gasoline output increased.
The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
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