PIRA Energy Group's Weekly Oil Market Recap for the Week Ending May 18th, 2014

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Asian Oil Markets Remain Constructive

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Crude oil stock draws have begun and will continue through September. As expected, physical markets are now supported by relatively low stock levels and higher crude runs.

NYC-based PIRA Energy Group reports that Asian oil markets remain constructive. On the week, demand surge lessens U.S. stock build, while Japanese turnarounds build crude stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asian Oil Markets Remain Constructive

Crude oil stock draws have begun and will continue through September. As expected, physical markets are now supported by relatively low stock levels and higher crude runs. The Atlantic basin has tightened first and Asia will follow. Supply disruptions remain near record highs, and while some return of shut-in supplies are assumed in PIRA's balances, they are by no means assured and can be accommodated if fully realized. Product demand growth trends remain positive as we move off the May lows to the summer peak.

Demand Surge Lessens U.S. Stock Build

Overall commercial inventories increased this past week, with nearly 1.0 million barrels of the build being in crude oil. It was the smallest stock increase in six weeks as reported demand surged. With a roughly similar sized build last year for the same week, the year on year inventory deficit narrowed marginally. Most of this deficit is in gasoline and distillate.

Japan Turnarounds Build Crude Stocks, Finished Product Stocks Rising, while Gasoil Demand Remains Weak

Crude runs eased slightly while crude imports rose such that stocks built 1.9 MMBbls. Finished product stocks also built 1.6 MMBbls due to builds in jet-kero, gasoil, and a modest rise in fuel oil. Finished product stocks have been rising steadily since mid-March. Gasoil demand was exceedingly weak, even post holiday. Refining margins were slightly higher but remain in the lower half of their statistical range.

Scenario Planning Quarterly Highlights

US shale liquids growth continues to outpace our forecast, but only slightly. A close examination of shale potential in Western Canada has led us to increase our outlook for crude and condensate although production costs in Canada appear to be higher than in the US. The developments in Ukraine increase the odds of greater investment in gas exports in the US and around the world in response to supply security concerns.

Freight Market Outlook

The U.S. shale crude revolution is changing the dynamics of global crude and product trade, and there is now an active dialogue on whether to lift the ban on crude exports from the U.S. If exports of crude or condensate are allowed at some point, global crude trade and ton-miles would increase, as U.S. refiners import heavier grades more suited to their refinery configurations, while some lighter crude grades and condensates are exported to Europe and Asia. PIRA’s Reference Case outlook in a soon-to-be released multi-client study anticipates that some crude and condensate exports will be allowed but not until 2017, after the next presidential election

Low Shoulder Season Demand Exacerbates Upcoming Inventory Builds

Large stock builds continue to weigh on prompt prices. As the year-on-year deficit continues to narrow, US LPG prices could come under additional pressure. Low shoulder season demand will only exacerbate upcoming inventory builds. Excess ethane due to surging production will leave ethane prices tied to natural gas prices for some time to come.

Ethanol Prices Rebound

U.S. ethanol prices bottomed early the week ending May 9 but rose sharply after the DOE reported that production and inventories both declined during the week ending May 2. Cash margins dropped for the sixth straight week.

Record Ethanol Blending

U.S. ethanol-blended gasoline manufacture rocketed to a record high 8,957 MB/D the week ending May 9, up 4.5% from 8,571 MB/D during the previous week, as gasoline output remained extremely strong. Ethanol production rose to 922 MB/D, the second highest output thus far in 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.

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