PIRA Energy Group's Weekly Oil Recap for the Week Ending June 9th, 2013

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North American Crude Markets Moving Closer to Reconnection with Global Markets

PIRA Energy Group

PIRA Energy Group

Differentials between WTI and coastal crude grades continued to tighten in May as the Cushing and global oil markets moved closer to reconnection –– now expected by the end of 3Q13.

NYC-based PIRA Energy Group believes that North American crude markets are moving closer to reconnect with global markets. On the week, U.S. commercial crude stocks drew. In Japan, runs rose but crude stocks drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*North American Crude Markets Moving Closer to Reconnection with Global Markets

Differentials between WTI and coastal crude grades continued to tighten in May as the Cushing and global oil markets moved closer to reconnection –– now expected by the end of 3Q13.

*U.S. Commercial Crude Stock Draw

Led by the largest crude inventory decline of the year, overall stocks fell the week ending May 31, the first inventory decline in six weeks. The entire expected May crude stock decline came in one week. 2012 had a large overall stock build in the same week, causing year-on-year stock excess to narrow. Crude stocks from a commercial point of view are actually a similar volume below last year because of required added inventory associated with new infrastructure.

*Japanese Runs Rise, But Crude Stocks Still Draw

Crude runs rose with the restart of Chiba and Tokyo Bay, which were previously down for maintenance. Crude imports rose but still allowed for a small crude stock draw. Gasoline stocks were unchanged, while gasoil stocks fell moderately. Kerosene demand fell back seasonally with higher yield such that stock levels moved back over 10 MMBbls. Refining margins have now appeared to have fully recovered from very weak April levels

*March Rally in LLS – Brent Consistent with Recently Published Fundamentals

The March 2013 Petroleum Supply monthly showed an increase in demand and decline in supply that were consistent with the LLS rally we saw a few months ago. Most of the February-to-March increase in PADD III crude runs occurred in eastern PADD III. February Gulf of Mexico crude production was revised lower and March production showed an additional decline. Light sweet crude imports into this part of PADD III fell to zero during March. While rail shipments of crude into Louisiana were up, year-over-year, the decline in production and imported supply, and the spike in crude runs, resulted in the “job of the market” being to incentivize imports.

*Surge in Propane and Propylene Stocks

The U.S. propane and propylene stock build surged the last week of May, gaining overall, but given the steep decline in propylene storage, the net propane increase reached a high, similar to last year's build. As a result, the net deficit to last season continued. Including propylene, the total stock position continues at the mid-range of the last several years. Steam cracker operations continue to find LPG favorable in Europe, but the recent price shift in Asia is an impediment to LPG use. In the U.S. ethane continues as the preferred feedstock

*Ethanol Prices Climb

U.S. ethanol prices jumped the week ending May 31, supported by robust demand, a tight market, and advancing corn values. Cash margins for manufacturing ethanol increased as product prices gained more than corn values. Prices are expected to move higher during the summer as inventories are low and corn prices are forecast to increase. Prices for D6 RINs, essentially for grain-based ethanol, climbed again and are likely to reach more this month.

*U.S. Ethanol Output Jumps

U.S. ethanol production reached an 11-month high of 885 MB/D the week ending May 31, as manufacturing margins improved and more plants are operating near capacity. Stocks were up 364 thousand barrels from the preceding week, the largest week-on-week gain since January.

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

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