PIRA Energy Group's Weekly Oil Market Recap for the Week Ending December 28th, 2014

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The Oil Price Decline Is a Significant Economic Stimulus, Not a Deflation Trigger

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PIRA’s forecast creeping stock surplus in 4Q14 is on target. The imbalance between supply and demand will grow in first half 2015.

NYC-based PIRA Energy Group believes that the oil price decline is a significant economic stimulus, not a deflation trigger. In the U.S., commercial stocks increase on the week. In Japan, there was little holiday uplift to gasoline demand, while runs continue to rise. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast, December 2014

The oil price decline is a significant economic stimulus, not a deflation trigger. Saudi Arabia’s change in policy to let the market dictate prices is all about market share. PIRA’s forecast creeping stock surplus in 4Q14 is on target. The imbalance between supply and demand will grow in first half 2015.

U.S. Commercial Stocks Increase Week-On-Week

Last week’s inventory increase contrasts sharply with last year’s inventory decline for the same week. U.S. commercial oil inventories are now a huge 76 million barrels, or 7.1%, above year ago levels. This week’s stock levels are the highest ever recorded for this particular week.

Little Holiday Uplift to Japanese Gasoline Demand, while Runs Continue to Rise

In Japan, crude runs were higher on the week with lower crude imports such that stocks drew. Gasoline demand was surprisingly weaker despite the Emperor's holiday, but stocks still posted a draw and are closing in on mid-August record lows. Gasoil demand was slightly lower, but yield fell and exports rose such that stocks drew slightly. Kerosene demand eased with higher yield and the stock draw rate moderated from the strong draws seen in the previous week. Refining margins were higher as all the major product cracks firmed.

Fractionation Margins Bounce Off Lows

U.S. Mont Belvieu fractionation margins improved last week due to plummeting natural gas prices. While this looks good on paper, lower prices on all products means significantly reduced profitability for wet gas producers. While Ethane’s BTU basis discount to methane narrowed on the week, it’s hard to see ethane’s strength sustained, as propane cracking margin continues to outperform C2.

Ethanol Output Reaches Another All-time high.

The week ending December 19, U.S. ethanol production climbed to 992 MB/D, the third consecutive week in which a new record high was established. Stocks remained near a nine-week high, declining by just 44 thousand barrels to 17.6 million barrels.

Ethanol Values and Manufacturing Margins Plummet

U.S. ethanol prices nosedived during December, but remain significantly above gasoline values. Manufacturing margins were also pressured by high inventories and rising corn costs.

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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