NYC-based PIRA Energy Group believes that Asian oil markets remain supported. In the U.S., stocks built.  In Japan, consumption tax increase depresses product demands. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asian Oil Markets Remain Supported

Oil prices should find increasing support moving forward as the worst of the spring crude stock building is almost behind us. Asian gasoline cracks should improve seasonally. Gasoil cracks should hold up with ongoing turnarounds and then higher demand, especially into 3Q.

Consumption Tax Increase Depresses Japanese Product Demands

Total commercial stocks rose 4.6 MMBbls due to a 4.9 MMBbl build in crude. Finished product stocks were modestly lower. Gasoil stocks drew for the eleventh straight week. All the major product demands fell back, as an increase in the consumption tax went into effect April 1st. That increase is likely to keep demands abnormally soft for the next couple of weeks and produce adverse demand comparisons to last April.

A Closer Look at Canadian Shale Liquids Potential

It is becoming increasingly likely that the next location of significant shale liquids growth will be Western Canada. A closer look at resource potential suggests that production volumes will substantially grow. There will be obstacles including cost pressures, water management, takeaway infrastructure limits and environmental concerns that will slow progress but none of these appear to be showstoppers.

Propane Stock Building Has Commenced

U.S. stock building occurred at a faster pace than last season, but propane inventory comparisons will remain far lower year-on-year. Propane exports will grow during the course of the year as new terminal capacity is added. Near term ethane usage is affected by a relatively high level of cracker downtime. The key development is the sharp escalation in spot international freight costs which is adversely impacting trade economics.

Ethanol Prices Plummet

U.S. ethanol prices tumbled the week ending April 4 as plant output increased sharply, enabling stocks to build for the second consecutive week. At the same time, prices had reached a high enough premium over gasoline that companies reduced the percentage of ethanol-blended fuel to the lowest level in about eight weeks.

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.

DW's new Drilling & Production information service is producing some interesting numbers, not least that meeting future global oil & gas demand will require massive numbers of new development wells to be drilled; in 2014 some 83,000, of which 80,000 will be onshore and 3,000 offshore. However, a forecast 17% increase in oil & gas demand by 2020 means that annual well completions will need to climb 35%; in all an additional 670,000 wells must be drilled by the end of the decade.

Offshore, the developing shallow water gas and highly productive deepwater sectors will offset the effects of an aging shallow water oil sector into the forecast, with total offshore oil & gas production set to rise 22% by 2020. DW expect to see a surge of deepwater well completions in the medium term - reaching 476 by 2018, up from 185 in 2013.

New annual onshore well numbers are set to grow 35% by 2020, as more completions are needed to offset ongoing production decline. Worldwide, more drilling for less oil & gas is a recurring theme; the Middle East will need to achieve more than 30% growth in drilling as the NOCs of KSA, Kuwait, Qatar and UAE start large redevelopments in the near-term – nevertheless, production will rise just 10% due to the maturing of existing fields. It is of note that the well numbers of the national oil companies will surge as the international oil majors endeavor to reign-in their spending.

Greenfield projects (onshore and offshore) in Russia could see production maintained at current levels into the 2020s, though recent diplomatic tensions could affect this considerably. China will invest significantly into output at home and abroad, notably Central Asia, as it looks to satisfy rapidly rising domestic demand.

On a global basis, much of the drilling is due to the continued resurgence of the dominant North American market (which accounted for 62% of worldwide development wells drilled in 2013).

Due to the fundamental importance of development drilling to the industry, we will be starting a new monthly Drilling & Production email service shortly. In the meantime further information can be obtained from:

NYC-based PIRA Energy Group reports that Cushing stocks decline; WTI rises. In the U.S., a more typical U.S. stock draw returns.  In Japan, Japanese crude stocks correct downward. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Cushing Stocks Decline; WTI Rises

The decline in Cushing crude stocks continued for a third straight month, while Gulf Coast stocks continued to rise, reducing the discount of WTI to Brent and LLS. Canadian differentials improved modestly from very weak levels, while rising stock levels in the Rockies and West Texas caused differentials for crudes in those regions to weaken.

A More Typical U.S. Stock Draw Returns

This past week has closed out the first quarter with a stock decline. We had just four weeks of stock builds during this year's first quarter and we also matched the largest inventory decline since 2009.

Aramco Announces Crude Price Differentials for May

Saudi Arabia's formula prices for May were recently released. European differentials were lowered, relative to April, while U.S. and Asian differentials were tightened. The European reductions were greatest on the lightest of grades, and slightly less for the heavier grades such as Arab Medium and Arab Heavy. After two months of "no change", U.S. differentials were tightened fairly significantly, with the biggest adjustment coming on Arab Heavy.

Heating Season Is Ending with U.S. Propane Stocks Low

The shoulder season is beginning with U.S. propane inventory relatively low. Stock building will be commencing but with exports remaining high the comparison to the year ago will be quite favorable. Ethane usage will be affected by a high level of steam cracker downtime over the next couple of months. Increased cargo flow especially to the East of Suez markets has led to sharply increasing VLGC freight rates.

Ethanol Prices Spike

U.S. ethanol prices increased sharply to an eight-year high Monday, and inventories dropped to a 15-week low during March as the lack of railcars to transport ethanol forced manufacturers to reduce output. As a result, manufacturing margins at PIRA’s model ethanol plant jumped to a record of nearly $2 per gallon by the end of the month.

U.S. Ethanol Production Rises

U.S. ethanol production increased sharply to a fourteen-week high 922 MB/D the week ending March 28 from 885 MB/D during the previous week as manufacturers sought to take advantage of near-record prices. Storage and transportation problems have eased for some manufacturers, but the issues still persist for many producers. Inventories rose for the second consecutive week, by 222 thousand barrels to 15.9 million barrels.

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.