PIRA Energy Group's Weekly Oil Recap for the Week Ending June 2nd, 2013

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Large U.S. Crude and Product Stock Build

PIRA Energy Group

PIRA Energy Group

Both the crude stock build and the product inventory increase for the week ending May 24 was greater than the stock build for the same week last year, causing the overall year-on-year stock excess to widen.

NYC-based PIRA Energy Group reports that on the week, there was a large U.S. crude and product stock build, while Japanese runs continued to drop as well as crude stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*Large U.S. Crude and Product Stock Build

Both the crude stock build and the product inventory increase for the week ending May 24 was greater than the stock build for the same week last year, causing the overall year-on-year stock excess to widen. Two-thirds of the stock excess is in products, particularly gasoline, while the crude inventory excess can really be attributed to required incremental infrastructure.

*Japanese Runs Continue to Drop as Do Crude Stocks

The week ending May 25 had another slight drop in crude runs and a very low crude import rate that drew crude stocks. Gasoline and gasoil demands were modestly higher, and while yields on both were significantly higher, gasoline and gasoil stocks were able to post modest draws. Refining margins, while still weak, are continuing to recover. Higher gasoline, naphtha, kero-jet, and fuel oil cracks more than offset slightly softer gasoil cracks.

*PIRA's Global Crude and Light Product Balances Point to Tighter Crude, More Balanced Products

PIRA’s proprietary Global Crude and Major Light Product Balances incorporate our latest and best thinking on global crude production, runs, and direct burn, as well as product demand, yield, and production. Inventory and days of supply projections derived from the balances point to crude tightening; gasoil loosening (albeit staying at the tight end of the range); gasoline loosening, but still with a big seasonal uptick in demand; and jet getting modestly tighter.

*OPEC Met on May 31 in Vienna

While concerned about future oil supply/demand developments, particularly with the surge in U.S. shale crude production, OPEC views the current oil market and prospects for 2H13 as balanced.

*Tanker Rates Mixed in May; Forecasts for 3Q and 2014 Indicate Continued Weakness

Tanker markets have been mixed, with VLCC rates improving from depressed levels in April while those in the smaller size groups have largely declined. But rates are likely to fall again towards cash operating levels in the seasonally weakest summer months. Fleet utilization levels remain on average quite low and will continue to decline as new tonnage is delivered, unless the level of scrapping increases significantly from recent and forecast levels. PIRA’s first look at detailed 2014 crude tanker balances suggests continued weakness next year as well.

*U.S. Inventory Building But Lagging Last Season

With the additional inventory for the latest week, U.S. stocks have added to storage so far this month, an increase from April. Overall inventory is now up, continuing in the mid-range of the last several years, with the deficit to last season. Overseas market structure does not yet encourage stock building, with most buying for immediate needs such as petrochemical feed usage.

*U.S. Ethanol Prices to Increase

U.S. ethanol prices increased in May, supported by robust demand, higher corn costs and extremely low inventories. Increasing RIN values also provided upside pricing pressure. Production grew to the highest level of the year and profitability remained strong. Ethanol-blended gasoline output also reached near-record levels. PIRA forecasts corn costs will increase in June, pushing prices higher.

*Output of U.S. Ethanol-blended Gasoline Surges

U.S. ethanol-blended gasoline manufacture reached 8.63 MMB/D the week ending May 17, the second highest volume of all time, up slightly from 8.62 MMB/D in the previous week. Ethanol Inventories continued to fall, dropping to 16.0 million barrels, the lowest since October 2010. U.S. ethanol production declined to 863 MB/D, still the second highest output this year.

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.

Click here for additional information on PIRA’s global energy commodity market research services.

PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016
(212) 542- 1677
info(at)pira(dot)com

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