NYC-based PIRA Energy Group reports that Cushing crude stocks continue to fall. On the week, product inventories push U.S. stocks higher.  In Japan, refiners begin coming out of turnarounds. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Cushing Crude Stocks Continue to Fall, Supporting WTI

Crude differentials in Midcontinent markets were mixed in May, with improvement in the most heavily discounted grades, like Canadian heavy and those in Midland, but declines in most other light grades. Cushing crudes remained relatively strong, with plenty of outgoing pipeline capacity now in place. Cushing stocks in May reached an all-time low in percentage terms and a five-year low in absolute terms. As Gulf Coast stocks drop this summer, causing the Cushing-Houston arb to reopen, severe WTI backwardation is a strong possibility. In other regions, rail and pipeline projects expected in the second half of this year portend increased takeaway capacity and stronger differentials in coming months.

Product Inventories Push U.S. Stocks Higher

Weaker reported product demand and a product import high for the year caused product stocks to increase, also a weekly high for 2014. Crude inventories fell for the week, leaving the overall stock build at 8.8 million barrels, which is in sharp contrast to last year’s 1.2 million barrel inventory decline during the same week. Thus, the year-on-year stock deficit narrowed by 10 million barrels to 13.6 million barrels, or just 1.2%.

Japanese Refiners Begin Coming Out of Turnarounds

Crude runs rose 29 MB/D as it appears turnarounds have begun to wind down. Imports rose from relatively low levels and crude stocks built 4.9 MMBbls. Finished products built slightly though gasoil and jet kero stocks posted draws. Refining margins were slightly lower with falling middle distillate cracks more than offsetting higher gasoline, naphtha, and fuel oil cracks.

India Quarterly Oil Demand Monitor

Market jitters that shook India in mid-2013 have faded. Economic data on growth continue to be disappointing, but optimism is running high after a decisive outcome in last month’s national election. Oil demand was held down in recent quarters by the sluggish performance of the economy and a continuous rise in retail diesel prices. But recent data on diesel under-recoveries showed that price hikes should be over soon. PIRA projects a moderate acceleration in oil demand growth going forward.

LPG Scorecard

Surging LPG inventories complicated by an upcoming export facility turnaround will pose challenges for domestic prices. A lack of incremental European demand and tight competition with naphtha in Asia will act as headwinds for LPG.

Ethanol Inventories and Production Soar

U.S. ethanol inventories soared to a 14-month high the week ending May 30 as plant output increased for the fourth consecutive week and ethanol-blended gasoline production dropped sharply. As a result, June ethanol futures prices plummeted.

Biofuels Programs Continue to Proceed Actively in Many Countries

Enerkem recently started its 10 million gallon per year waste-to-biofuels plant in Edmonton, Alberta. Universal Robina started up its 30 million liter per year ethanol plant in Manjuyod in the Negros Oriental province of the Philippines in May.

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.

NYC-based PIRA Energy Group reports that U.S. demand growth was only 0.3%, but distillate and kero-jet demands were very strong. On the week, U.S. stock deficit widens in spite of commercial stock build.  In Japan, crude runs eased with continuing low crude imports such that stocks posted a moderate draw. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

March DOE Monthly Supply/Demand

DOE released its final monthly March 2014 (PSM) U.S. oil supply/demand data today. Demand came in at 18.53 MMB/D versus the 19.10 MMB/D PIRA had assumed in its balances. Compared with the weekly preliminary data, total demand was revised downward by only 14 MB/D. While demand growth was only 0.3%, or 50 MB/D, distillate and kero-jet demands were very strong, aided by colder-than-normal weather and colder weather relative to last March. End-March total commercial stocks stood at 1,057 MMBbls. PIRA had assumed 1,052 MMBbls in its balances. Crude stocks came in 7.6 MMBbls lower than PIRA assumed, while products came in 13.2 MMBbls higher.

Stock Deficit Widens in Spite of Commercial Stock Build

Total commercial stocks built for the week ending May 23, although the three major light products drew, reflecting strong pre-holiday-weekend demand. A surge in imports drove crude stocks higher, and all other oils built collectively. With a much larger total stock build last year, the year-over-year stock deficit increased. As noted last week, the effective stock deficit could be even larger, with approximately 9.5 million barrels of crude operational stocks for new infrastructure this year versus last.

Japanese Turnarounds Continue

Crude runs eased with continuing low crude imports such that stocks posted a moderate draw. Finished products also drew. Demands were only slightly changed, with a small stock build in gasoline, a small draw in kerosene, and larger draws on fuel oil, gasoil, and notably naphtha.

LPG Scorecard

Stronger demand and favorable arbitrage economics for LPG exports will be counteracted by ever increasing U.S. LPG inventories. Lower demand in Europe will keep LPG prices within range, while Saudi loading delays, higher contract prices, and less spot Middle Eastern volumes will be supportive for prices in Asia.

Ethanol-blended Gasoline at an All-time High

U.S. Ethanol-blended gasoline manufacture soared to a record 8,980 MB/D the week ended May 23, eclipsing the previous high of 8,957 MB/D set earlier in the month. U.S. inventories increased by 499 thousand barrels to an annual high 17.5 million barrels.

Prices/Margins Rise in May

U.S. ethanol prices increased during May as consumption in gasoline soared to a record high, while inventories in the Midwest are at the lowest level of the year. After declining for six consecutive weeks, manufacturing margins rose, with lower corn costs adding to the improved economics.

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.

NYC-based PIRA Energy Group reports that Asian oil markets remain constructive. On the week, demand surge lessens U.S. stock build, while Japanese turnarounds build crude stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asian Oil Markets Remain Constructive

Crude oil stock draws have begun and will continue through September. As expected, physical markets are now supported by relatively low stock levels and higher crude runs. The Atlantic basin has tightened first and Asia will follow. Supply disruptions remain near record highs, and while some return of shut-in supplies are assumed in PIRA's balances, they are by no means assured and can be accommodated if fully realized. Product demand growth trends remain positive as we move off the May lows to the summer peak.

Demand Surge Lessens U.S. Stock Build

Overall commercial inventories increased this past week, with nearly 1.0 million barrels of the build being in crude oil. It was the smallest stock increase in six weeks as reported demand surged. With a roughly similar sized build last year for the same week, the year on year inventory deficit narrowed marginally. Most of this deficit is in gasoline and distillate.

Japan Turnarounds Build Crude Stocks, Finished Product Stocks Rising, while Gasoil Demand Remains Weak

Crude runs eased slightly while crude imports rose such that stocks built 1.9 MMBbls. Finished product stocks also built 1.6 MMBbls due to builds in jet-kero, gasoil, and a modest rise in fuel oil. Finished product stocks have been rising steadily since mid-March. Gasoil demand was exceedingly weak, even post holiday. Refining margins were slightly higher but remain in the lower half of their statistical range.

Scenario Planning Quarterly Highlights

US shale liquids growth continues to outpace our forecast, but only slightly. A close examination of shale potential in Western Canada has led us to increase our outlook for crude and condensate although production costs in Canada appear to be higher than in the US. The developments in Ukraine increase the odds of greater investment in gas exports in the US and around the world in response to supply security concerns

Freight Market Outlook

The U.S. shale crude revolution is changing the dynamics of global crude and product trade, and there is now an active dialogue on whether to lift the ban on crude exports from the U.S. If exports of crude or condensate are allowed at some point, global crude trade and ton-miles would increase, as U.S. refiners import heavier grades more suited to their refinery configurations, while some lighter crude grades and condensates are exported to Europe and Asia. PIRA’s Reference Case outlook in a soon-to-be released multi-client study anticipates that some crude and condensate exports will be allowed but not until 2017, after the next presidential election.

Low Shoulder Season Demand Exacerbates Upcoming Inventory Builds

Large stock builds continue to weigh on prompt prices. As the year-on-year deficit continues to narrow, US LPG prices could come under additional pressure. Low shoulder season demand will only exacerbate upcoming inventory builds. Excess ethane due to surging production will leave ethane prices tied to natural gas prices for some time to come.

Ethanol Prices Rebound

U.S. ethanol prices bottomed early the week ending May 9 but rose sharply after the DOE reported that production and inventories both declined during the week ending May 2. Cash margins dropped for the sixth straight week.

Record Ethanol Blending

U.S. ethanol-blended gasoline manufacture rocketed to a record high 8,957 MB/D the week ending May 9, up 4.5% from 8,571 MB/D during the previous week, as gasoline output remained extremely strong. Ethanol production rose to 922 MB/D, the second highest output thus far in 2014

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.