PIRA Energy Group's Weekly Oil Market Recap for the Week Ending January 4th, 2015

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It Is Too Early to Get Long Oil

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The bulk of the first-half 2015 inventory builds will be in crude oil. As crude inventories build, more expensive storage will be required, which will relatively weaken prompt prices; that is, widen the contango.

NYC-based PIRA Energy Group believes that it is too early to get long oil. In the U.S., the stock surplus jumps. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

It Is Too Early to Get Long Oil

The bulk of the first-half 2015 inventory builds will be in crude oil. As crude inventories build, more expensive storage will be required, which will relatively weaken prompt prices; that is, widen the contango. This can only be mitigated by an increase in inventory demand from currently depressed levels. PIRA believes that such an increase in demand is unlikely to be strong enough to offset the weight of the impending increase in inventory supply. In such an environment, it is very difficult for prompt crude oil prices to rally.

U.S. Stock Surplus Jumps

The global imbalance between supply and demand compared to last year is vividly apparent in the U.S. stock data. From a 9 million barrel excess in 2013, beginning the fourth quarter, it has now expanded to 85 million barrels as of December 26. This is an increase of around 10 million barrels versus the week earlier. 2013 stocks decreased this past week while in 2014 they increased. Crude stocks are now 25 million barrels higher than in 2013, having begun the quarter 7 million barrels lower. From deficits last year beginning the fourth quarter, gasoline and distillate stocks are now higher.

Latin American Oil Market Report

Latin American refinery runs will increase in 2H15 driven by the startup of a new refinery in Brazil and the restart of revamped capacity in Colombia. Latin American product imports will level off, breaking the growth trend of the last few years. The U.S. will remain the primary supplier of products for import into the region.

Closed U.S. Refineries Contribute to Overall Downtime

Permanently closed refineries in the U.S. have had a significant affect in lowering crude run demand and subsequent gasoline and distillate production.

India Quarterly Oil Demand Monitor

India’s recent economic performance was somewhat disappointing, as GDP expanded by an estimated 5.3% during 2014. Growth prospects have improved, however, as lower oil prices will allow households and businesses to increase spending and the central bank to loosen monetary policy. Vehicle ownership continued to rise, in spite of stagnant sales. End-user oil prices dropped sharply in recent months, including those for diesel. PIRA projects a moderate oil demand increase of 130 MB/D (3.3%) for 2015. But upside potential is significant, given how declining prices boosted India’s oil demand in the past.

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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