PIRA Energy Group's Weekly Oil Market Recap for the Week Ending March 3, 2013

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Oil Prices to Be Modestly Negative Over Next Few Months

PIRA Energy Group

PIRA Energy Group

Oil Prices to Be Modestly Negative Over Next Few Months.

NYC-based PIRA Energy Group believes that oil prices will be modestly negative over the next few months. On the week, U.S. product stocks declined as demand increased, while in Japan both crude and product stocks drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

*Oil Prices to Be Modestly Negative Over Next Few Months

A growth scare is likely to develop from tax increases and spending cuts in the United States and the political crisis in Italy. This together with financial net length in oil futures contracts well above forecast levels has caused PIRA to turn modestly negative about oil prices over the next few months. The growth scare will inevitably fade and 2H13 economic growth is still forecast to be above trend.

*Product Stocks Decline as Demand Increases Week-on-Week

U.S. commercial product stocks declined more than the prior week. Reported demand increased the week ending February 22, in addition to the DOE raising its product export assumption (plug) and products imports falling. A sharp increase in crude runs explained a large part of the smaller crude stock build on the week versus the previous week.

*Both Crude and Product Stocks Draw in Japan Week-on-Week

In Japan, there was a significant commercial stock draw, with crude declining due to much lower crude imports and higher runs. Finished product stocks also drew, with strong demand and generally lower yields.

*Crude Storage to Support Infrastructure Growth Reduces Market Impact of Stock Overhang

PIRA estimates that at least one-third of the current year-on-year crude stock surplus is being used to ‘prime the pump’ for infrastructure growth, and thus is not readily available to meet market needs. Specifically, new Cushing storage tank bottoms, storage growth at production sites, line fill and operational storage for new or expanded pipelines make up a good portion of the surplus. It is unclear how much volume currently held in railcars is in the reported stock number.

*U.S. Stocks Remain Adequate Despite Colder Outlook

Despite the colder U.S. outlook for March, stocks remain adequate, with the possible exception of the New England region. Higher exports will certainly help work off some of the Gulf's excess propane stocks. In Europe and Asia propane markets remain steeply backwardated over the next several months, with the curve shifting toward contango to accommodate the need to prepare for storage building, given the expected extra cargo flows.

*U.S. Ethanol Prices Fall Week-on-Week

U.S. ethanol prices fell slightly during February, generally tracking lower corn costs. Prices and margins are expected to rise and more plants will restart soon. However, corn availability will be a problem for some companies in 2Q13 and 3Q13, and many producers will have to wait for the new crop and anticipated lower corn prices in 4Q13 before seeing a rebound in margins.

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.

PIRA Energy Group
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New York, NY 10016
(212) 542- 1677

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