PIRA Energy Group's Weekly Oil Market Recap for the Week Ending December 7th, 2014

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Crude Prices Fall as Cushing Stocks Rise

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By now, the story about the increase in U.S. crude production and the resulting decline in crude net imports is a familiar one. How these changes played out in individual PADDs, however, is a different story.

NYC-based PIRA Energy Group reports that crude prices fall as Cushing stocks rise. In the U.S., stocks drew slightly. In Japan, crude runs rose, crude imports were lower and crude stocks drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Crude Prices Fall as Cushing Stocks Rise

Crude prices continued their downward spiral in November, with WTI dropping below $70/Bbl. Regional grades in the Rockies and West Texas strengthened vs. WTI, on new pipeline takeaway capacity. Canadian crude differentials weakened slightly. Cushing crude stocks rose 3 million barrels in November, ending the month at 24 MMB.

U.S. Stocks Draw Slightly

This past week, crude runs soared to the highest level since peak summer runs. This ended nine weeks of product stock declines during the fall maintenance season, and product inventories increased. Not surprisingly, crude stocks flipped to a draw from mostly builds. The resulting overall stock decline was 6 million barrels less than last year’s inventory decline for the same week, widening the year on year inventory excess.

Japanese Crude Runs Rose, Crude Imports Were Lower and Crude Stocks Drew

Crude runs rose out of turnarounds. Alignment with our planned turnaround schedules still looks good. Crude imports were lower and crude stocks drew 2.1 MMBbls. Finished product stocks drew due to draws on fuel oil and naphtha. Gasoline demand was slightly higher, the yield increased and stocks built. Gasoil demand was lower, and stocks drew. Kerosene demand fell and stocks built.

PADD Crude Balances Show Different Reactions to Production Growth

By now, the story about the increase in U.S. crude production and the resulting decline in crude net imports is a familiar one. How these changes played out in individual PADDs, however, is a different story. Parts of each regional crude balance have followed quite a different path than the national aggregation. Changes to internal logistics and flows are a key part of the story, with rail both contributing to, and benefiting from, the growth in shale crude production. A prolonged period of low prices, especially low wellhead values in the Bakken and Canada, could dramatically reduce the need for infrastructure growth, and slack infrastructure utilization would be reflected in additional narrowing of regional price differences.

Freight Market Outlook

OPEC’s decision to leave their production target unchanged at current levels signals the start of a new era for the oil markets. While the oil sector is now in crisis mode, the tanker sector is experiencing a seasonal rebound. Bunker prices have declined by more than $185/ton since July while tanker rates have generally firmed in most trades, leading to sharply higher vessel earnings. The new normal seems to be characterized by more frequent tanker rate spikes and higher volatility in the Atlantic Basin as trading patterns have yet to fully adjust to the growing volumes of crude and products that must move from the Atlantic to Asia. Longer term, higher OPEC output, lower growth in non-OPEC supplies and inexpensive bunker fuel are highly beneficial to the tanker sector.

U.S. NGL Prices Crushed

It’s becoming increasingly clear that LPG supply is outpacing demand globally. While crude prices have stabilized for the moment, LPG has had no such luck, with prices remaining in freefall mode. U.S. prices were crushed across the board, with the Saudi CP cut a major catalyst; Mont Belvieu propane fell 15% to 58¢/gal and butane lost 17% to 81¢. But the ethane price deterioration was even worse. C2 prices fell a massive 23% as the feedstock struggles to compete with cheap propane in the U.S. steam cracker pool.

Ethanol Manufacturing Margins Soar

U.S. ethanol assessments were mixed during the holiday-shortened week ending November 28; prices in Chicago and the Gulf Coast continued to climb as the market was tight, while New York and Southern California ethanol tumbled from lofty levels. Manufacturing margins were the highest since March as inventories remained low.

Ethanol Stocks Build

U.S. ethanol manufacture declined to 962 MB/D during the holiday-shortened week ending November 28, down from a record 982 MB/D in the preceding week. After falling for two consecutive weeks despite record output, stocks built by 217 thousand barrels to 17.3 million barrels.

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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