PIRA Energy Group's Weekly Oil Market Recap for the Week Ending March 29th, 2015

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The Positive Impact of Lower Oil Prices on Global Economic Growth is beginning to be Seen but Oil Markets Remain Oversupplied

PIRA Energy Group

The positive impact of lower oil prices on global economic growth is beginning to be seen but oil markets remain oversupplied with a 2 MMB/D surplus in the second quarter, which will continue to negatively impact physical markets.

NYC-based PIRA Energy Group believes that the positive impact of lower oil prices on global economic growth is beginning to be seen but oil markets remain oversupplied. In the U.S., oil inventories built this past week. In Japan, turnarounds gear up, but crude and product stocks draw. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast, March 2015

The positive impact of lower oil prices on global economic growth is beginning to be seen but oil markets remain oversupplied with a 2 MMB/D surplus in the second quarter, which will continue to negatively impact physical markets. New price lows for Brent are unlikely and WTI is not expected to go below $40/Bbl. Both prices are anchored by the back of the market and available storage capacity, even if it is floating. The magic of price is working to tighten oil markets but it takes time. Gasoline season looks healthy but new refinery capacity will pressure distillate. Political uncertainties are on the rise with this weekend’s Nigerian elections, Saudi Arabia’s direct military involvement in Yemen, and turmoil in Libya, among other things.

U.S. Inventories Lead the March Surge

U.S. oil inventories built this past week, bringing the March stock build to nearly 1 MMB/D. Relative to last year U.S. inventories are 164 million barrels, or nearly 16% higher than last year. Over half of the excess is in crude oil.

Japanese Turnarounds Gear Up, but Crude and Product Stocks Draw

Crude runs eased again as maintenance continues to pick up pace. Crude stocks drew to a record low on a low import figure, while finished product stocks also drew on higher demands and lower runs. The indicative refining margin remained strong.

LPG Stocks Building from Record Base

U.S. propane inventories increased by 638 MB, the second consecutive weekly build - signaling that the bottom for stocks has likely been put in, and that stocks will continue to build thru September from this high base level of 50.3 MMB. Stocks of NGLs and LRGs (excluding propane) more than doubled their prior week’s gain to 1.1 MMB, bringing inventories to 77.3 million barrels, 15.2 MMB above the year ago volume.

Ethanol Stocks Decreased for Third Consecutive Week

U.S. ethanol prices declined at the beginning of the week ending March 20, but strengthened after the DOE reported an inventory draw for the third consecutive week. The output of ethanol-blended gasoline rose to a twelve-week high.

Biofuels Programs Continue in Over 60 Countries

Canada imported 1.2 billion liters (318 million gallons) of ethanol in 2014 to help satisfy its 5% ethanol mandate. Essentially all imports come from the U.S. In Mexico, PEMEX awarded contracts for the supply of up to 123 million liters (32.5 million gallons) per year from locally sourced sugarcane and sorghum.

Yemen: Saudi Intervention Adds $3-$5 Risk Premium Only Temporarily Because Of Low Physical Supply Risks

Saudi Arabia's intervention in Yemen with Kuwait, Qatar, the UAE, Bahrain and Egypt contributes to growing instability and unpredictability in the region, but poses little direct threat to oil and gas supplies. While the physical supply risks are low at this point, Saudi's decision does add $3-$5/Bbl to the risk premium, which began to be priced in late yesterday. This premium will gradually erode over time if large supply disruptions do not materialize (which is what we expect).    

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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