PIRA Energy Group's Weekly Oil Market Recap for the Week Ending September 15th, 2013

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U.S. Refinery Turnaround Season Is Approaching

PIRA Energy Group

PIRA Energy Group

U.S. Refinery Turnaround Season Is Approaching.

NYC-based PIRA Energy Group reports the U.S. refinery turnaround season is approaching. On the week, U.S. demand fell to the lowest level since early June and crude stocks declined. In Japan, crude stocks posted a modest draw. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

U.S. Refinery Turnaround Season Is Approaching

The peak of the U.S. refinery turnaround season is approaching. October crude distillation unit downtime is expected to be up sharply from September's outages. The results are somewhat higher than expected in the December 31, 2012 U.S. Refinery Turnarounds report. Downtime for the balance of 2013 is slightly above average, not counting the effects of unplanned events.

U.S. Inventories Build in September Doldrums But Look Out Ahead

As PIRA noted last week, September demand is typically weak and true to form for the week ending September 6, reported demand fell to the lowest level since early June. Very low product imports kept product stocks from building more. Crude stocks declined and now that the refinery maintenance season is quickly approaching, crude stock declines will tend to be replaced by some modest inventory increases.

Japanese Crude Stocks Post a Moderate Draw

Crude runs were little changed and crude imports fell back thus drawing crude stocks. Gasoline and gas oil demand were rather strong and stocks for both of these products also drew. Kerosene demand was also surprisingly strong for this time of year and stocks posted their first decline of the season. Refinery margins are beginning to slowly improve with all the cracks gaining on the week. Fuel oil discounts to crude, however, remain exceedingly wide and are adversely impacting topping margins.

Latest Oil Inventory Update: Continued Low Stocks

The final June data and preliminary July data for OECD Europe were released this past Thursday and when combined with U.S. and Japanese estimates continue to point to low inventories in the three major OECD markets. The June stock data were revised lower and the second quarter is now showing an inventory decline compared to last month's increase. Relative to the year earlier, stocks began the year with an excess and ended August with a deficit.

3Q13 Iraq Oil Monitor

Despite growing sectarian divisions and violence, devolution into full civil war has been restrained so far by a thaw in KRG/Baghdad relations, Iranian pressure on Shia PM Maliki, and a general reluctance to repeat the violence of 2006-2007. Pipeline bombings have reduced Northern exports. While Southern production remains unaffected by the violence, an explosion at a non-oil exporting port highlights potential risks. Infrastructure maintenance will reduce Southern exports in September and October.

Ethanol Prices and Cash Margins Soar

Ethanol values in Chicago rose during the week ending September 6 because of the scarcity of corn in the Midwest, causing production to fall to a 22-week low and inventories to drop to the lowest level in two months. Cash margins for ethanol production rocketed to the highest level since November 2011.

Ethanol Production Rebounds

U.S. ethanol production rose to a 4-week high of 848 MB/D the week ending September 6 from 819 MB/D in the preceding week. Some plants restarted after routine summer turnarounds. In addition, facilities in the Midwest have been able to secure corn via barge and rail from as far south as Mississippi, where the 2013/2014 harvest has already begun.

Libya: Political Demands Reduce Chances of Near-Term Production Recovery

The duration and severity of the disruptions to crude oil production and exports in Libya indicate that the underlying protests have become political. The lack of a competent central governing authority compounds the issue. Eastern tribes are likely to continue demanding more regional autonomy, which reduces the likelihood of a swift resolution and return of oil production. Thus, PIRA has downgraded its forecast for Libyan production for the rest of 2013 and 2014 to reflect the increased probability for continuing disruptions.

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.

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