PIRA Energy Group's Weekly Oil Market Recap for the Week Ending July 7th, 2013

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Backwardation has Returned to WTI

PIRA Energy Group

PIRA Energy Group

Backwardation has returned to WTI, as futures markets anticipate a very tight light crude market in Cushing, Oklahoma this summer and fall.

NYC-based PIRA Energy Group believes that global Backwardation has returned to WTI. On the week, U.S. stocks had a large draw. In Japan, lower imports draw crude stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*WTI Backwardation Returns

Backwardation has returned to WTI, as futures markets anticipate a very tight light crude market in Cushing, Oklahoma this summer and fall. Discounts between Midcontinent and coastal grades continue to tighten, while strengthening Canadian and Bakken prices are crushing the economics of crude rail transport, which has been so profitable for the last two years.

*Large U.S. Stock Draw

This past week saw a U.S. commercial oil inventory decline with even product stocks declining despite higher crude runs. The crude runs were the highest weekly crude run figure in over five years. The huge stock decline this past week narrowed the year-on-year inventory excess. Crude stocks are virtually flat with last year. Distillate stocks are higher than last year, but remain relatively low, and this is likely to continue to be the case with exports remaining strong.

*Japanese Crude Runs Continue Rising, Lower Imports Draws Crude Stocks

Runs rose slightly on the week and crude stocks drew strongly as crude imports eased back. Gasoline stocks built slightly, while gasoil stocks drew again and remain low. Kerosene demand remained seasonally low and kerosene stocks continued to build. Refinery margins continued to post gains as stronger light product cracks offset slightly weaker fuel oil cracks.

*Ethanol Prices Fall

For the week ending June, 28 U.S. ethanol prices fell for the third consecutive week due to strong production coupled with demand limited by the E10 blend wall. Manufacturing margins rebounded as corn costs fell faster than ethanol prices. RIN values for both grain-based and sugarcane-based ethanol were near or at all-time highs.

*Ethanol-Blended Gasoline Manufactures Reaches All-Time High

U.S. ethanol-blended gasoline manufacture soared to a record 8,854 MB/D the week ending June 28, eclipsing the previous high of 8,651 MB/D set earlier in June. U.S. ethanol output dropped to 863 MB/D from 885 MB/D in the preceding week, and no imports were reported. Consequently, ethanol inventories were drawn down 848 thousand barrels to 15.45 million barrels, the lowest level since October 2009.

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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