PIRA Energy Group's Weekly Oil Market Recap for the Week Ending July 28th, 2013

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Tighter Supply-Demand Balances Will Support Price Structure

PIRA Energy Group

PIRA Energy Group

A synchronized economic upturn in the developed world will lift softer emerging market economies. Tighter oil market supply-demand balances and inventory declines will support price structure.

NYC-based PIRA Energy Group believes that tighter supply-demand balances will support price structure. On the week, the U.S. had another weekly crude inventory decline. In Japan, crude, gasoline and gasoil stocks all drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*Tighter Supply-Demand Balances Will Support Price Structure

A synchronized economic upturn in the developed world will lift softer emerging market economies. Tighter oil market supply-demand balances and inventory declines will support price structure. Weaker 2014 oil market balances, slower China economic growth, Iran nuclear talks, and current market positioning will all reduce the demand for inventory. Gasoline inventories are on the high side while diesel/gasoil stocks are relatively low, causing diesel cracks to take the lead while gasoline cracks decline.

*Another Weekly U.S. Crude Inventory Decline

Overall commercial oil inventories have fallen over the four weeks, ending July 19. The entire stock decline over this period and the week of July 19 has been in crude oil, which is also down versus last year. Product stocks were roughly flat for the week, while the three major light products were down, each one showing a decline. The large decline in the week-to-week overall product stock build was because of stronger reported demand, lower product imports, and lower product output (runs).

*Japanese Crude, Gasoline, and Gasoil Stocks All Draw W/W

Crude runs rose on the week and imports backed off sufficiently to draw crude stocks. Gasoline demand remained very strong post-holiday, leading to a draw in gasoline stocks. Gasoil stocks also drew, hitting another new low for the year. Kerosene demand remained seasonally low, and kerosene stocks continued building .The ever-weakening fuel oil cracks are noticeably hurting topping refinery profitability, but wide light product cracks are allowing cracking refineries to enjoy reasonably strong margins.

*U.S. is Key LPG Exporter

LPG from the U.S. Gulf Coast has largely gone to Latin America, with incremental barrels going to Asia. Europe remains relatively tight and will need to price to attract product, especially with more extensive North Sea maintenance getting underway.

*Margins for Ethanol and Biodiesel Manufacturing Higher

U.S. ethanol prices followed an inverted V-shaped curve during the week ending July 19th, rising to a five-week high before giving back most of their gains by Friday. Ethanol RIN prices soared due to aggressive buying by a few obligated parties. Cash margins for ethanol manufacture advanced for the fourth consecutive week as average product prices increased while corn costs declined. Biodiesel manufacturing margins also improved and were the highest since September 2011.

*U.S. Ethanol Production Declines W/W

U.S. ethanol production declined sharply to an 11-week low during the week ending July 19th as plants in the Corn Belt reduced output due to dwindling corn supplies. The U.S. received 41 MB/D of imports, including the first shipment into PADD V since early June.

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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