PIRA Energy Group's Weekly Oil Market Recap for the Week Ending June 23rd, 2013

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While Macro Concerns Remain Physical Balances Remain Positive

PIRA Energy Group

PIRA Energy Group

Physical oil balances are tightening with crude stock draws about to begin as refiners come out of turnarounds and ramp up crude runs.

NYC-based PIRA Energy Group believes that while macro concerns remain physical balances remain positive. On the week, U.S. commercial crude oil stocks build while year-on-year excess narrows. In Japan crude imports stay low while stocks draw. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*While Macro Concerns Remain Physical Balances Remain Positive

Physical oil balances are tightening with crude stock draws about to begin as refiners come out of turnarounds and ramp up crude runs. The impact of stock draws on physical crude markets will take time to be felt given the March to May accumulation of inventory.

*U.S. Commercial Crude Oil Stocks Build While Year-On-Year Excess Narrows

Commercial oil inventories increased for the week ending June 14, virtually all of which was in products. The product stock increase was outside of the four major products which drew. Last year saw a larger overall inventory increase the same week, so the year-over-year excess inventory narrowed. Gasoline and crude oil make up the bulk of the year-over-year excess inventory.

*Japanese Crude Imports Stay Low, Stocks Draw

This past week saw a large draw in crude stocks as imports remained low and refineries have begun to come out of turnarounds. There were modest builds in both gasoline and gasoil stocks, while kerosene stocks showed a more substantial build. Refinery margins, in dollar terms, continued to post gains.

*Energy and Oil Consumption Spurred by Increasing World Urbanization

The world’s population is increasingly living in urban areas, and this trend towards rising urbanization is particularly evident in China. While increasing urbanization is often linked to increasing income per capita in developing countries, PIRA has found that increasing urbanization by itself (holding income constant) boosts energy and oil demand, as urban dwellers have greater access to commercial energy. The U.N. projects that global urbanization will increase by more than 4 percentage points over the next decade, which should add about 0.4% (or almost 400 MB/D) per year to world oil demand growth, other things being equal.

*A Surge in Orders for Clean Product Tankers Could Threaten Nascent Recovery in Clean Product Trades

The number of vessels on order has been buttressed recently by a significant pick-up in new orders for product tankers. Ninety-two of the 107 tankers ordered in 2013 are product tankers. There appears to be a consensus among shipping analysts and forecasters that global product trade is expanding while crude trade is stagnant, and this is shifting the order book from crude to products.

*LPG Stocks Continue Building in the U.S.

The shoulder season continues to see increasing stocks for both propane and butane, with ethane adversely impacted by cracker outages and excess supplies. It will take time for conditions to improve.

*U.S. Ethanol Prices and Manufacturing Margins Tumble

U.S. ethanol prices tumbled for the week ending June 14, tracking corn costs lower. Ethanol manufacturing margins declined to an 11-week low. Prices for D6 RINs, generated from grain-based ethanol, decreased but are expected to reach $1 or more this summer.

*U.S. Inventories Soar

U.S. ethanol inventories were up 458 thousand barrels for the week ending June 14 to 16.45 million barrels, the largest week-on-week gain since January. Ethanol production fell to 873 MB/D, though output outside the Midwest rose to a 46-week high of 63 MB/D.

*EPA Likely to Reduce 2014 Mandates

The Renewable Fuel Standard (RFS2), as currently structured, becomes unworkable in 2014 unless the EPA partially waives the mandate for cellulosic, advanced and total biofuels. Simply put, there will not be enough RINs generated or biofuels consumed to meet the volumetric requirements. However, the reduced standards are not likely to be finalized before mid-2014.

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
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New York, NY 10016
(212) 542-1677

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