Even where breakeven prices are similar, shale liquids development will generally represent a lower-risk alternative for investors than oil sands due to the lower upfront costs and shorter period of cash impairment.
New York, NY (PRWEB) April 16, 2013
NYC-based PIRA Energy Group reports that total U.S. commercial oil stocks build for the first time since late January. In Japan, crude imports eased, lowering crude stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
*First U.S. Weekly Commercial Inventory Build Since Late January
In the week ending April 5, total U.S. commercial inventories posted their first build since late January. The build, combined with a draw this week last year, further widened the year-on-year commercial stock excess, some of which is tied up in infrastructure growth. The four major refined products stocks increased on the week, sharply narrowing the year-on-year deficit.
*Japanese Crude Imports Ease Lowering Stocks
Japanese crude runs rose slightly, but crude imports dropped back significantly, drawing crude stocks. Finished product stocks rose largely due to builds in gasoil and fuel oil. Demands for gasoline and gasoil rebounded. Kerosene stocks continued drawing. Refining margins are being depressed by very weak gasoline and naphtha cracks.
*Shale vs. Oil Sands: Breakeven Price is Only Part of the Story
Even where breakeven prices are similar, shale liquids development will generally represent a lower-risk alternative for investors than oil sands due to the lower upfront costs and shorter period of cash impairment. For similar reasons, shale liquids production will be more responsive to price movements than oil sands projects. While the growth of price sensitive shale volumes will not eliminate price volatility, it will directionally dampen the impact.
*U..S. Begins Building Propane Inventory
U.S. propane stocks built for the first time this year during the transition week between March and April. More typically, builds would have already commenced at some point in March, but given the colder-than-normal weather, the month saw an imputed propane stock draw of almost seven million barrels, one of the highest declines for the month during any previous year. Chemical feedstock usage will remain a critical outlet for LPG for all markets and especially so in the coming months in Europe and Asia, with prices to be quite competitive against naphtha.
*Margins for Ethanol Manufacturing Higher
U.S. ethanol prices rose during the week ending April 5th due to low inventories and an otherwise tightly supplied market. At the same time, corn prices continued to collapse. As a result, cash margins reached the highest level since December 2011 and idle plants are being brought back on line. Prices for Renewable Identification Numbers (RINs) rose again as the EPA reported less carryover than many in the industry estimated.
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.
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