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piraNYC-based PIRA Energy Group believes that oil prices strongly supported by tight oil supply/demand balances. On the week, U.S. Stock Draw Led by Crude Oil, while Japanese Crude Stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Oil Prices Strongly Supported By Tight Oil Supply/Demand Balances (Asian Outlook)

Oil prices have been strongly supported by relatively tight oil market supply/demand balances that have lasted through the early part of 2014. As oil markets progress through the first quarter, supply/demand balances will soften and prices will likely weaken from today's levels but the erosion should be limited in scope. OPEC and Saudi Arabia, in particular, have the means to limit declines as output remains in their comfort zone and can be adjusted as needed. 

Massive U.S. Stock Draw Led by Crude Oil

This past week's inventory decline is the largest ever recorded for this particular week and drove the year-on-year stock deficit to 57.2 million barrels, or 5.2%. With reported (four week average) demand running 4.2%, or 780 MB/D above year ago levels, days' supply forward inventory cover is quite low, although not as low as in 2007/2008.

Big Jump in Japanese Crude Stocks

Of note on the week was a huge surge in crude stocks of 10.8 MMBbls as crude imports rose from 3 MMB/D to 5.5 MMB/D. Finished product stocks drew 1.2 MMBbls. While gasoline stocks built slightly, all the other major products drew. Gasoil demand rebounded from abnormally low levels. Kerosene stock draws resumed after a one week increase.

Fracking Policy Monitor

The BLM rules regarding fracking on federal lands remain without a finalization date and the diesel guidance has been mired at OMB for over 115 days. The Congressionally mandated study on drinking water safety – likely to inform regulations post-2016 – also faces issues that may bolster attacks on its legitimacy. PIRA believes that given President Obama’s support of fracking, we are unlikely to see new federal regulations or stepped-up enforcement before November 2014 elections.

U.S. Continues to Show LPG Price Strength

Propane continues to see upward price moves as storage is pulled to record lows, particularly in the Midwest. With the cold returning, and exports and feedstock use on-going, prices will remain relatively firm. Just as the U.S. was strengthening, international markets were relatively weaker, narrowing export arb opportunities.

U.S. Ethanol Production Drops

Ethanol production plummeted to a fourteen-week low 868 MB/D from 919 MB/D the week ending January 10 as frigid weather conditions in the Midwest negatively affected operations at several plants. PADD II stocks rose for the fifth consecutive week, bringing them to the highest level since the end of April 2013.  

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 Aramco formula crude prices for February cut for Asia and Europe, but U.S. raised. In the U.S., crude leads stocks lower. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Aramco Formula Crude Prices for February Cut for Asia and Europe, but U.S. Raised

Saudi Arabia's formula prices for February were recently released. Pricing adjustments for the key markers were lowered for the Asian and European destinations. The reductions for Asia were greatest on the lighter grades, though there was also a reduction in the Arab Heavy differential. European pricing while also reduced, was generally less aggressive than for Asia while the largest reduction was on the heaviest grades.

Crude Leads Stocks Lower

Total U.S. commercial inventories fell this past week with the entire decline occurring in crude oil. Product inventories increased marginally as crude runs stayed at an extremely high rate while reported demand fell on the week in large part because of the Christmas Holiday. For the same week last year, stocks fell so the year-on-year stock deficit narrowed.

U.S. Refinery Turnarounds, January

The first six months of 2014 are expected to experience above average turnaround related refinery downtime. This compares survey results from previous years and does not take into account the high level of unplanned events which occurred over the past several years and are quite likely to be experienced in the new year as well. For example, PIRA's U.S. Refinery Turnarounds survey published on December 31, 2012 expected an average planned crude unit downtime for the first half of 2013 of about 1.6 MMB/D, also the highest level for the five year period from 2009 to 2013. Actual outages turned out to be closer to 2.3 MMB/D.

Tanker Markets Exited 2013 On a High Note

Tanker markets exited 2013 on a high note, with rates in most crude trades hitting new highs for the year in December while exceeding earlier expectations by a wide margin. The recent seasonal improvement in tanker rates is a reflection of higher global refinery runs, which rebounded strongly from autumn maintenance, increasing by 3.8 MMB/D from October to December, with 2.4 MMB/D of the increase in the Atlantic Basin. Tanker markets in the Atlantic Basin also benefited from weather, and strike-related delays in December.

Tight U.S. Propane Market and Looser Overseas Conditions

U.S. propane storage continues to fall to record low levels, with PADD II especially low.  The extremely cold weather is causing production and logistical bottlenecks as well, and, of course pulling demand higher.  The relatively warm weather overseas, especially in Europe, falling crude prices and the arrival of cargoes from the USGC and West Africa have been pulling international LPG prices lower.

U.S. Ethanol-Blended Gasoline Reaches a Record High

U.S. ethanol-blended gasoline production reached an all-time high during the week ending December 20. Ethanol prices were mostly higher in the holiday-shortened week ending December 27, and manufacturing margins rose for the first time in three 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.


piraNYC-based PIRA Energy Group reports that the global economy continues to improve. On the week, the U.S. stock decline moderated. In Japan, runs continue rising, key product demands are stronger. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Global Economy Continues to Improve

The global economy continues to improve, setting the stage for relatively strong oil demand growth next year. Fourth quarter global balances are tight and support ongoing price strength. Bearish supply darkens the 2014 price outlook, but PIRA reckons the downside will be limited with Saudi Arabia able to balance the market. The weakness will be felt mostly in the first half 2014 because of seasonal demand weakness and crude inventory builds.

U.S. Stock Decline Moderates

Overall commercial inventories fell slightly this past week, after four prior weeks of declines averaging 8.0 million barrels per week. Crude stocks built as crude imports stayed stubbornly high, especially from the Middle East. Product stocks drew as higher product supply and lower reported demand reduced the week-on-week product inventory decline. The year-on-year inventory excess remained modest, with the excess mostly in crude, largely related to new infrastructure associated with rapidly expanding North American production. 

Japanese Runs Continue Rising Post Turnaround, Key Product Demands Stronger

Runs continued rising post-turnaround but crude imports moved strongly higher and stocks built 3.1 MMBbls. Both gasoline and gasoil demand displayed decent gains and inventories of both drew. Kerosene demand remained strong and stocks continued drawing. Refinery margins, again, moved slightly higher. 

Scramble for LPG Supply Continues

U.S. propane stocks continue to draw at a rapid pace and are expected to end the year well behind last year's level.  International LPG prices are reaching record levels amidst significant supply disruptions. 

Ethanol Output Matches Yearly High

U.S. ethanol production rebounded the week ending November 22, equaling its annual high of 927 MB/D, which had been reached two weeks earlier.  Inventories declined by 61 thousand barrels to 15.02 million barrels, only slightly higher than the three-year low of 14.96 million barrels reported near the end of October. 

Ethanol Prices and Margins Spike in November

In November, U.S. ethanol prices and manufacturing margins skyrocketed to the highest level in two years, but gave back some of the gains last week. Very low inventories and a shortage of railcars to take ethanol to the blenders drove the market up. Companies are reluctant to hold stocks with the market in severe backwardation.

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. 


GlobaldatabluelogoRecent Alaskan bill seeks to reduce tax burden on larger oil and gas operations

Incentive could result in increased production to mitigate North Slope declines, says analyst

Uncertainty surrounds the outlook for Alaska’s fiscal terms as a referendum seeking to repeal a new bill, which imposes a flat 35% production tax rate, will be held in 2014, says a new report from research and consulting firm GlobalData.

According to the company’s latest report*, Alaska has made several changes to the fiscal terms governing its upstream oil and gas operations in the past decade, mostly through amendments to the production tax and the introduction of a vast range of tax credits, resulting in a relatively unstable regime over this period.

Alaska’s new production tax, as laid out in Senate Bill 21 (SB 21), seeks to reduce the tax burden on larger oil and gas operations in the hope that this will promote exploration and development activity in the region, thereby boosting its economic growth and employment.

However, opposition to the tax change comes from those who believe it will significantly affect state finances, by reducing the tax take, and low-margin oil and gas producers in the state for whom the tax burden will increase.

Evan Turner, GlobalData’s Lead Analyst covering Upstream Oil & Gas, says: With almost nine months to go until the referendum is held, there is a high degree of uncertainty around the likely outcome of the vote. Currently, polls suggest that the vote will be close, with no clear majority yet formed on either side of the argument.

However, given that it is the larger producers who are likely to gain from the tax change, it is expected that the no campaign may benefit from considerable financial support, so that it can promote a message of economic and employment gains. For instance, BP Alaska has announced that due to the tax changes, it plans to add $1 billion of investment for the next five years.”

GlobalData expects this referendum to be the key determinant of the medium-term outlook for Alaska’s  upstream oil and gas fiscal regime.

Turner says: “If SB 21 is repealed, the tax will revert back to Alaska’s Clear and Equitable Share (ACES) system, with rates varying from 25-75%. If not, the new flat rate of 35% will mean an improvement in the investment climate for large oil and gas operations and the possible deterioration for smaller operators.

Incentivizing larger operators in the state to increase investment and the drilling of wells should result in increased production to mitigate North Slope declines, concludes the analyst.

*Alaska Upstream Fiscal and Regulatory Report


BusinessMonitorBusiness Monitor has just released its latest findings on Ghana’s burgeoning Oil & Gas sector in its newly-published Ghana Oil & Gas Report.

As the Jubilee field, which secured Ghana's place as a West African oil exporter, approaches peak output of 120,000 barrels per day following a series of technical problems, the nascent producer is increasingly looking to continue the boom as interest in the region's untapped deepwater potential remains high. Approval of the TEN project will see Ghana's second major oil development come online from late 2016; however, Business Monitor see risks that without a positive investment decision on a number of promising new discoveries under appraisal and/or new finds, the country's overall output will begin to gradually slip from the end of the decade. Although the Jubilee gas project now seems on track, tensions between Eni and the government over the Sankofa project will result in delays to Ghana's push to bring online more gas. This could see the government turn to liquefied natural gas to meet the shortfall in the wake of a precarious outlook for imported gas via pipeline from Nigeria.

Examples of the main trends and developments discussed in the report:

■ After a troubled start, output from the Tullow Oil-operated Jubilee field is on track to reach the target production rate of 120,000 barrels per day (b/d) by the end of 2013. According to Tullow's H213 operational update, output was averaging 110,000b/d and remained on track to reach the plateau rate of 120,000b/d the end of the year. With operators Tullow and Kosmos noting that current well deliverability at Jubilee exceeds the current capacity of existing infrastructure, further development may be required to allow for maximum monetisation of the field. Further development of Jubilee poses upside risk to Business Monitor’s forecasts, with plans designed to extend the fields plateau.

■ In another sign of strength for Ghana's oil sector, regulatory approval was given to the Tullow-led Tweneboa-Enyerna-Ntomme project (TEN), which will see peak output of 80,000b/d (less than the 100,000b/d initially planned) and is due to come online by late-2016. Tullow is in the process of seeking a buyer for up to 20% stake by Q114 in order to fund the US$4.9bn project.

■ This increased upstream activity will support rising production, which Business Monitor expect will grow from around 110,000b/d in 2013 to 243,000b/d by the end of their forecast period in 2022. However, these volumes assume the contribution of new supplies beyond fields currently approved, namely liquids from Eni's Sankofa development. With the introduction of new supplies from fields under appraisal such as the Mahogany, Teak, Akasa and Banda (MTAB) or the Cape Three Points Block, Business Monitor see risks that output will begin to fall from the end of the decade. There is added downside risk to this view from the prospect of a faster-than-expected rate of decline at the Jubilee field.

■ New production will be important, in line with a strong macroeconomic picture; oil demand is expected to rise, which will in turn reduce the amount of oil available for export, hitting earnings. However, with added supplies, should Ghana fail to invest in its downstream, it will continue to rely on expensive imports of refined products from abroad as the ageing refinery at Port Tema falls short of domestic demand.

■ A deal announced in late September would see Tema upgrade aging equipment in order to increase capacity from 45,000b/d currently to 60,000b/d by 2015. Current utilisation is 60% according to Tema officials, but the facility has struggle in the past given financing and equipment woes since 2009. Ghana continues to seek private investment, with the government acknowledging it alone will be unable to finance operations. There is a chance capacity could rise to as much as 245,000b/d over the long term if new facilities come online toward 2018. An absence of firm plans prevents inclusion of new capacity in Business Monitor’s current forecast.

■ Business Monitor see that the outlook for gas is promising, but as indicated by recent delays to the US$700mn project to capture gas from the Jubilee field, there are a number of risks to developing the necessary infrastructure to monetise gas, given the primary target for operators is liquids. After Sinopec halted work and threatened to completely pull-out of the Jubilee gas project following a row over missed financial obligations by the Ghanaian government, Business Monitor pushed back first gas to 2014. While the project is likely to come online next year, they see risks to future phases from both a lack of funds and the prospect that greater volumes of gas will be directed to increasing recovery rates from the Jubilee oil field as output plateaus.

■ While Business Monitor see scope for Ghana to eliminate its reliance on imported gas, uncertainty regarding supply and demand calls leads them to maintain a small import requirement fed by the WAGP for the duration of their 10-year forecast period.

To find out more about this report please click here.


GlobaldatabluelogoOffshore blocks offered in Bangladesh's Bay of Bengal have attracted a disappointing level of interest from license-holders; however, anticipated improvements to the terms governing the country's oil and gas industry could entice investors, says research and consulting firm GlobalData.

According to the company's latest report*, only one extra bid is thought to have been received for the shallow-water blocks during the extension of Bangladesh's 2012 bidding round, adding to the three already received. As a result, more attractive fiscal terms are likely to be implemented in upcoming rounds, although the next one is unlikely to commence until 2015.
The fiscal terms for Bangladesh's deepwater blocks were amended significantly, with a number of new incentives, mid-round in 2013; however, no such improvements were applied to the terms for the shallow-water area, despite increasing demand for natural gas.

Jonathan Lacouture, GlobalData's Lead Analyst for the Asia-Pacific region, cites this lack of incentives as a reason for the low number of bids.

Bangladesh faces fierce competition from India and Myanmar for exploration investment in the Bay of Bengal,says the analyst. Incentives are needed to make the Bangladeshi blocks stand out, especially considering the substantial turnout which Myanmar recently experienced in its own licensing round."

Indeed, Bangladesh's upstream oil and gas sector is further clouded by ongoing uncertainty over the status of certain blocks in the shallow-water area. Following a clash with Myanmar over maritime boundaries, a similar dispute with India now remains unresolved, and arbitration on this dispute is not expected until June 2014.

Lacouture continues: If the ruling on this issue favors India, then it would threaten the integrity of the six offshore blocks on the western edge of the exclusive economic zone, which are currently claimed by Bangladesh. This arbitration means that the next bidding round will probably not happen until 2015 and the delay will only increase authorities urgency to attract investors."
Will Scargill, Fiscal Analyst for GlobalData, suggests that future incentives are most likely to be offered through either a higher-cost recovery limit, or an improved gas-pricing framework.
He says: "

Given the level of domestic demand, export provisions are unlikely to be offered. The 2008 model contract permitted exports, and it was precisely for this reason that there was a lot of political opposition to the contract."


SaltireSaltire Energy, supplier of drilling tools to the offshore oil & gas industry, has posted its annual results (year end to June 30, 2013) with turnover up more than 50% from £21.5million to £32.9million.

Operating profit for the year has also risen from £14.1million to £18.5million.

Mike Loggie, Chief Executive of Saltire Energy, said: "The last 12 months has seen steady growth in our business in the UK and across our international operations.

"As a company, our focus is on delivering high quality equipment and services for our clients and we have seen a significant rise in our activities in the Middle East, Africa, Asia Pacific, the UK and North Sea. This has supported growth in our turnover across the company.

"Over the coming months, we plan to increase our footprint in Aberdeen with the expansion of our facilities in Portlethen and expand our presence in Europe with the opening of a further base.

"Developing our equipment inventory has been a strong focus and last year we invested £10million back into the business, which we have done again in 2013 to extend our suite of industry accredited drilling tools and pipe. This allows us to continue to meet the needs of our clients and fuel further growth of the business."

Since the company was established in 1986, it has developed a strong reputation for delivering high quality customer service and flexibility, increasing its global presence through strong industry networks and agent partnerships.

Mike continued: "The company would not be where it is today without the skills, expertise and commitment of our team. Earlier in the year we further strengthened our management structure with the appointment of Craig Mitchell as a director. We have bolstered our staff numbers with the addition of 10 new personnel, taking our workforce to 52, with plans to grow this further in the next 12 months."

Saltire Energy has also maintained its commitment to the community with support for local charity Befriend a Child and has financially supported the Saltire Sports for Schools initiative to date, contributing £500,000 to the project, with this figure likely to rise year on year by approximately £50,000. This has enabled approximately 2,000 children from five local primary schools, some of which are located in the city's designated regeneration areas, to develop their sporting and interpersonal skills at Aberdeen Sports Village's state-of-the-art sporting environment.

The company is also a major funder of the Aquatics Centre, one of only two Olympic standard facilities in Scotland, which is set to open in early 2014.

Saltire Energy is also a strong supporter of the university scholarship programmes and sponsorship of Open Champion and Ryder Cup hero Paul Lawrie.


piraNYC-based PIRA Energy Group Reports that October’s oil demand weakness is deceptive and product demand will soon get a substantial lift to propel refining margins higher. On the week, U.S. commercial oil stocks fell, while Japanese crude runs have begun to rise and crude stocks build. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

October’s Oil Demand Weakness is Deceptive

PIRA projects world GDP growth will accelerate next year and believes with tail risks minimized and fiscal constraints declining, the risks to growth are to the upside. October's oil demand weakness is deceptive and product demand will soon get a substantial lift to propel refining margins higher and crude oil prices as well after a couple more weeks of softness. 

U.S. Commercial Inventories Fall W/W

Overall U.S. commercial inventories fell the week ending October 25, as a very strong increase in reported demand pulled product stocks down, leading to the largest weekly inventory decline of the year. This more than offset the crude stock increase. Crude stock increases will begin to moderate and turn into inventory declines as imports decline and runs increase in November. 

Japanese Runs Rise Out Post-Turnaround, Margins Still Soft

Japanese runs have begun to rise and implied crude imports moved higher building crude stocks. Gasoline demand decreased and stocks built slightly. Gasoil demand increased, stocks drew and remain just off record lows. Kerosene demand surprisingly was strong which produced a small stock draw. Refinery margins remain soft and were slightly lower on the week.

August DOE Monthly Revisions

Compared with the weekly preliminary data, total demand was revised 110 MB/D lower, with gasoline and distillate decreasing 31 MB/D and 21 MB/D, respectively. Compared to 2012 levels, demand has declined a modest 65 MB/D, or -0.3%. Kero-jet demand clearly outperformed, up 3.7%, while gasoline underperformed -0.7%. Total commercial stocks were revised higher by 2.7 MMBbls, with crude being raised 3.3 MMBbls. 

October Weather: All Regions Warmer than Normal

October turned out to be warmer than both the 10-year and the 30-year normal for the three major OECD markets. All three markets came in warmer than the 10-year normal and combined HDDs were 15% below the 10-year normal and 23% warmer than the 30-year normal. 

Competition for LPG Supply is Intensifying

The competition for product is intensifying. A frenzy is occurring in the U.S. mid-continent as farmers seek propane for drying the quite large and wet corn crop. On-going supply issues from the North Sea, strong pull from Latin America as well as seasonal and other needs for Asia and Europe are all pressuring markets, leading to higher prices. 

Corn, Ethanol, and RIN Prices Fall in October

U.S. corn and ethanol prices declined in October, as expected. Ethanol manufacturing cash margins remained healthy as the market was tight with four-year low inventories. 

Ethanol Output Soars

U.S. ethanol production rose for the third consecutive week, surpassing 900 MB/D for the first time since June 2012. Output was 911 MB/D, up from 897 MB/D in the prior week as the 2013/2014 corn harvest is more than half complete in several Corn Belt states and more feedstock is available. 

Biofuel Output Increases in 2013

After years of rapid growth, world biofuels production was flat in 2012. Growth has resumed this year, boosted by increases in Brazilian ethanol manufacture and U.S. biodiesel production, along with modest gains in other countries. 

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 midcontinent fundamentals improve as weather turns cold.  In the U.S., product stocks build while crude draws.  In Japan, there is a big crude stock draw, but weaker product demands. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Midcontinent Fundamentals Improve as Weather Turns Cold

Crude oil fundamentals improved throughout the Midcontinent in December, with stocks declining at least modestly at Cushing, Patoka, West Texas, the Rockies, Western Canada and the Gulf Coast. Winter has begun with a vengeance in the Midcontinent – from ice storms in Texas and Oklahoma to subzero temperatures in the Far North. Production impacts are likely to be most pronounced in the oil sands of Alberta and rural areas of North Dakota. Weather is also affecting truck and rail deliveries, with the latter exacerbated by yet another crude-by-rail accident.

U.S. Product Stocks Build while Crude Draws

Total commercial inventories increased this past week with a decline in crude oil more than offset by an increase in products. Crude runs remained very high. Reported demand was down largely due to the New Year’s Holiday as well as severe winter weather impacts (less travel, power outages, people hunkered down in many areas). For the same week last year, stocks built, so the year-on-year stock deficit widened.

A Big Japanese Crude Stock Draw, but Weaker Product Demands

The most notable items were a sharp drop in crude stocks for the latest week (1/4) and the relatively weak demands to begin 2014, which strongly built finished product stocks. The overall balance in total commercial stocks, however, rose only 1.1 MMBbls from the data that had last been reported on 12/21. We expect the data to normalize in the next week or so, with demand rebounding for all the major products.

U.S. Propane – Market Leader

U.S. propane continues to provide market leadership as stocks ended the year at a historically quite low level. The warming this coming week will provide some relief to end-users, and enable more resupply downstream, but cold will likely resume thereafter, keeping propane as the leader of the NGL complex. International markets have been generally pressured lower by the arrival of cargoes from the USGC and West Africa, in addition to milder weather especially in Europe. The arb has shifted to favor USGC exports to Europe over Asia, although Latin America will certainly remain the prime outlet for US product.

U.S. Ethanol Prices Decline

Ethanol prices fell the week ending December 27 due to reduced demand for gasoline blending. In addition, inventories in PADD II were the highest since May. Shortages of rail car space supported prices on the coasts.

Ethanol Production Increases

U.S. ethanol production started the year by rising to 919 MB/D from 913 MB/D during the prior week. The manufacture of ethanol-blended gasoline tumbled for the second consecutive week after having reached a record 8,856 MB/D during the week ending December 20. 

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. 


piraNYC-based PIRA Energy Group reports that the midcontinent fundamentals weakened in November. The U.S. is in a much tighter stock position than last year. In Japan, Japanese low crude imports draw stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Midcontinent Fundamentals Weaken in November

High crude stocks on the Gulf Coast led to a further disconnect between U.S. and foreign markets in November, with the Brent-LLS differential rising to a record $10/Bbl. Meanwhile, continuing surplus stocks in the western Canada corridor further depressed Canadian differentials. And with West Texas now pipeline-connected to the Gulf Coast, the weak LLS-WTI spread allowed Midland differentials to slip lower. However, by late November and early December fundamentals were improving and all differentials had strengthened, with LLS and Mars moving from contango into backwardation.

U.S. in Much Tighter Stock Position than Last Year

For the first time this year U.S. commercial oil inventories have fallen below last year. Crude stocks are 14 million barrels above last year, although from a commercially available stock position crude inventories are really comparable to last year because of new infrastructure. Overall product stocks are 16 million barrels below last year. The inventory deficit to last year should further widen next week. While there is a small stock deficit to last year, adjusted petroleum product demand (four week average) is running a huge 1.57 MMB/D, or 8.5%, higher than last year.

Japanese Low Crude Imports Draw Stocks

Runs continued rising post-turnaround, but crude imports moved lower resulting in a strong crude stock draw. Both gasoline and gasoil demand eased back with minor stock changes for both. Kerosene stocks posted strong build rate, but the kerosene yield relative to jet yield does not fall within expected norms, suggesting a data revision down the road.

Increased Saudi Formula Crude Prices for January Directionally Discourage Liftings

Saudi Arabia's formula prices for January were recently released. Many of the differentials against the key pricing benchmarks were raised for movements to the U.S, Europe, and Asia, though Asian premiums on Arab Heavy and Medium were lowered slightly. For the U.S. market, the higher January differentials for Arab Light/Medium/Heavy are the strongest ever seen since the adoption of ASCI as a marker in 2010. The overall changes to formula pricing for January will directionally discourage liftings.

Refinery Outages and Atlantic Basin Products

While growing product exports from high runs in the United States have received much of the attention recently, there has also been an ongoing need for more light product imports into Latin America and Africa. That import requirement is driven by growing demand but stagnant refinery capacity. It has been compounded by refinery outages at times. Last year disastrous fires in Venezuelan refineries cut refinery output. More recently there was a fire in the Brazilian 190 MB/D REPAR refinery on November 28. Although it was originally thought to come back on line by mid-December, reports are now suggesting that it will take longer, perhaps by end-month.

Atlantic Basin Surplus Crude

The growth in crude production in the Atlantic Basin will have a profound impact on regional crude supply/ demand balances. Crude production growth is being driven by the shale “revolution” in the United States and increased oil sands development in Canada. The Atlantic Basin is broadly defined as including the Americas, Europe, and Africa. Refinery runs in these countries have declined somewhat in recent years after peaking in 2005-2007, but they are expected to slowly resume growth with increases in the U.S. and Latin America more than offsetting declines in Europe. However, the projected growth in crude production is much greater than the increase in refinery runs. As a result a sizeable crude surplus will develop within the region and crude will be forced to seek markets elsewhere, primarily in the rapidly growing countries in Asia. 

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. 


piraNYC-based PIRA Energy Group reports that improving VMT and trucking trends confirm better highway fuel demand growth. On the week, U.S. product stocks declined again, while in Japan crude stocks built. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

 Improving VMT and Trucking Trends Confirm Better Highway Fuel Demand Growth

The Federal Highway Administration recently released vehicle miles traveled (VMT) data for August, while the American Trucking Association released its Truck Tonnage Index for September.  Both indicators showed improvements versus year-ago, and this confirms the improvement in both gasoline and estimated on-highway diesel demand growth.  PIRA's forecast through year-end, for both gasoline and diesel, suggests that both these indicators from FHA and ATA should continue their improving trend. 

Another Huge U.S. Product Inventory Decline

Overall commercial oil inventories in the United States fell almost 6 million barrels for the week ending November 8, with a product inventory decline more than offsetting a crude stock increase. Product inventories have declined for nine consecutive weeks, falling over 42 million barrels but are expected to moderate over the next few weeks. With crude runs strongly moving up, this should translate into crude stock declines, particularly at the Gulf Coast. The stock excess to last year narrowed this past week. 

In Japan, Runs Continue Rising, Crude Stocks Build

Runs continued rising post-turnaround and crude imports stayed sufficiently high to produce another large crude stock build. Gasoline and gasoil demands eased but their yields were notably lower so stocks of both were only modestly changed. Kerosene demand eased slightly but yield jumped such that stocks resumed building. Refinery margins moved slightly higher as light and heavy cracks showed modest improvement. 

Tight LPG Markets

U.S. propane markets remain quite tight as crop drying, exports, petchem feed use and meeting winter needs combine to pull stocks lower. Propane has reached its highest value relative to WTI so far this year. Various supply limitations are helping pressure international prices higher just as winter weather is approaching. LPG has been priced out of the chemical feedstock pool.

U.S. Ethanol Prices Decline

Most ethanol prices declined early the week ending November 8 before advancing thereafter due to strong domestic and export demand, as well as higher corn prices. Cash margins for ethanol manufacture fell to the lowest level in 11 weeks.

EPA Proposes Biofuel Requirements for 2014

Friday afternoon, the EPA issued a regulatory announcement that proposes to substantially reduce the 2014 biofuel requirements set forth in the Renewable Fuel Standard (RFS2). The Agency proposed specific volumes and is soliciting comments for selecting a value from specified ranges for total, advanced and cellulosic biofuels. 

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. 


piraNYC-based PIRA Energy Group reports that Asian oil markets are fundamentally supportive, but Atlantic basin imbalances remain. On the week, U.S. crude stocks built again, while Japanese crude stocks drew slightly. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asian Oil Market Fundamentally Supportive, but Atlantic Basin Imbalances Remain

After recovering in the first half of October, crude oil prices have come under pressure once again. Global physical balances are weak with stock building in progress which is undermining crude oil price time spreads. The stock builds have been larger than anticipated because refinery runs have been lower as margin pressure has lasted longer. The data out of China looks better and economic downside risks have lessened. Asian middle distillate cracks have held up relatively well and demand strength should continue to be supportive. 

U.S. Crude Stocks Build Again

U.S. crude stocks built for the week ending October 18, the fifth consecutive weekly increase. Some 70% of the build has been at the Gulf Coast and another 22% occurred in PADD II. Crude price time spreads signaled the October builds and they are doing the same for November. The expected tightening of global crude balances in November has been postponed by significantly lower crude runs than what was anticipated earlier. Crude markets in Europe are quite weak with a substantial overhang of North Sea barrels pressuring spreads, especially with the recent sharp increase in long haul freight. 

Storm Impacts and Turnarounds Continue

This week saw the impact of Typhoon Wipha, while next week will reflect Typhoon Francisco. Japanese runs dropped back further, but should soon start turning higher. Implied crude imports stayed low and crude stocks drew slightly. Gasoline demand was relatively strong, with lower yield that drew stocks. Gasoil demand fell back, but yield was much higher and stocks built off record lows. Refinery margins remain soft. 

U.S. Propane Stocks Being Drawn Down

Colder weather has arrived in the U.S. and will help pull propane stocks yet lower. Exports remain active, as does petchem feed use, as well as usage for crop drying. Propane has traded at the highest level in months relative to WTI. 

Ethanol Prices Higher

U.S. ethanol prices advanced during the week ending October 18 as supply was tight and corn rose after attracting large buying from China. RINs stabilized after a draft EPA memo lowering the 2014 biofuels mandates sent values plummeting during in the previous week. 

U.S. Ethanol Output Soars

U.S. ethanol production soared to 897 MB/D the week ending October 18, the highest output since June 2012, as the 2013/2014 corn harvest is progressing in the Midwest and more feedstock is available at extraordinarily low prices. Output was up 3.2% from 869 MB/D in the preceding week. 

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. 


GlobaldatabluelogoA bill for what is arguably the most liberal energy reform in Mexico to date presents an opportunity for ending an inertia situation that has surrounded the region's oil and gas industry for longer than necessary; however, a number of clarifications are required in the secondary laws that are due to be drafted and negotiated later in 2014, says an analyst with research and consulting firm GlobalData.

Adrian Lara, GlobalData's Lead Analyst covering Upstream Oil & Gas, states that while Mexico's energy reform introduces new arrangements, such as profit-sharing contracts, production-sharing contracts and licenses, the most ground-breaking aspect is the change in the Constitution that will allow private companies to participate in exploration and production (E&P) activities under specific contracting schemes.

However, as Lara says: "The changed law does not specify which type of contract will be applicable to the different types of hydrocarbon E&P. Industry observers and participants will therefore have to wait for the so-called secondary laws that will frame the fiscal terms for the new contracts.

"This additional information will allow for a more rigorous test in assessing the effectiveness of the 2013 energy reform. While it is still not decided when this fine print will be drafted and voted on, the second half of 2014 could be viewed as the best-case scenario."

Progress towards the current reforms began in August 2012, when a proposal for reforming Mexico's energy sector was submitted to Congress. This argued that the bulk of the region's remaining hydrocarbon reserves are located in challenging areas, both from geological and engineering perspectives, and that sophisticated and expensive technology is required to recover these reserves.

Furthermore, while Mexico's Petroleos Mexicanos (Pemex) possesses ample expertise in shallow waters, it lacks the experience needed for entering more complex projects located in offshore deep waters or onshore shale plays.

Lara continues: "Pemex's necessities, in a way, indicate ideal opportunities for private investment. Deepwater, shale and even shallow-water areas can benefit from different combinations of technology transfer, capital expenditure in E&P and managerial expertise."

A crucial test of Mexico's reforms will be the reaction of international oil companies when the first new opportunities are offered, which will depend to a great extent on what exactly is offered. In any case, Lara believes there is a long way to go before the approved reform materializes in new production, or has a significant effect on the wider Mexican economy through lower energy prices.

The analyst concludes: "For the time being, this reform seems to bring about the opportunity for ending Mexico's inertia situation. The most important point is that the bill's passage removes the barrier of the Constitution from a wide range of future reforms, allowing Mexico's energy sector to adapt to prevailing conditions in the future."

Comments to be attributed to Adrian Lara, GlobalData’s Lead Analyst covering Upstream Oil & Gas.


BusinessMonitorBusiness Monitor has just released its latest findings on Indonesia's oil and gas sector in its newly-published Indonesia Oil & Gas Report.

Business Monitor believes that the outlook for Indonesia's oil and gas sector is becoming increasingly uncertain. They forecast a long-term decline in total liquids production and a stagnation of gas production. This is mainly a result of the slow pace of exploration and development, exacerbated by an increasingly uncertain regulatory environment as resource nationalism creeps into the government's policy towards the sector. Opportunities for exports will be further compromised by the domestic market's increasing energy demand. Hence, falling oil and gas exports is another key trend identified for Indonesian oil and gas.

Key Trends and Developments discussed in the report:

■ Business Monitor forecast that oil and gas reserves will most likely be on a downward trend in the coming decade: oil reserves are expected to decrease from an estimate of 4.0bn barrels (bbl) of oil at the beginning of 2013 to 3.7bn bbl in 2017, falling further still to 3.4bn bbl by 2022. For gas, they expect reserves levels to be stagnant as addition from exploration successes in East Kalimantan cancels out natural depletion from existing fields. Reserves are forecast to fall from 3.07tcm in 2013 to 2.80tcm in 2017, and fall further to 2.51tcm unless the pace of drilling activity picks up.

■ Despite this outlook, Indonesia is a country where much below-ground potential continues to exist. If the country relaxes its nationalist stance on resources, there is considerable upside potential for both oil and gas reserves - greater drilling of its unexplored deepwater areas and its unconventional resources - coalbed methane and shale gas.

Business Monitor expect total liquids production (excluding refinery processing gains) to rise from an estimate of 919,670b/d in 2013 to 926,180b/d in 2014 and 932,260b/d in 2015, owing to major fields finally coming on-stream or ramping up to their full production capacity. Thereafter, in the longer term Business Monitor see oil output trending downwards to 884,840b/d in 2017 and hitting a low of 808,280b/d by 2022.

Despite grand plans to expand the country's refining capacity, difficulty in financing greenfield projects on top of modernising old plants in a unfavourable policy environment will see limited change to Indonesia's downstream landscape. Business Monitor expects refining capacity to stay stagnant at around 1.12mn b/d from 2015 through to the end of their forecast period. Total refined oil product output is expected to rise initially from an estimate of 981,840b/d in 2012 to 990,600b/d in 2016 - a result of an increase in output from modernised Cilacap and Balikpapan. However, growing inefficiencies in older plants could reverse this uptrend as utilisation rate falls, thereby leading to a slide in production downwards to 973,840b/d by 2022.

Owing to production problems, Business Monitor expect total gas production to have fallen to 71.3bn cubic metres (bcm) in 2012. Major gas projects expected on-stream in the next five years should support a slight rise in production, which they forecast at 77.0bcm in 2017 as declining production rates from existing fields will be cancelled out by new gas developments. Thus Business Monitor expect production levels to stay relative stagnant at 76.7bcm by 2022. Regulatory risks remain great and policy uncertainty underpins their sombre outlook of Indonesia's gas production within their 10-year forecast period. The country's gas consumption is estimated at 39.1bcm in 2012. With an increasing amount of new gas from projects reserved for the domestic market, this allows room for domestic gas demand to grow to about 48.0bcm in 2017 and hit 55.7bcm by 2022.

Greater confidence in Indonesia could be inspired if there is a more consistent policy towards the oil and gas industry; for one, the permanent establishment of a new upstream regulator to replace BPMigas. Temporary regulator (at time of writing), SKKMigas, has yet to be made permanent. Given the corruption scandal plaguing the make-shift regulator, it is unlikely to receive full regulatory authority anytime soon in the future. Moreover, proposed plans could see SKKMigas assume the identity of a stateowned firm - renamed as the National Upstream Oil and Gas Development Company (PPMN) - which could take a participating interest in projects it jointly signs with contractors.

At the time of writing Business Monitor assumed an OPEC basket oil price for 2014 of US$101.80 per barrel (bbl), falling to US$100/bbl in 2015. Global GDP in 2014 is forecast at 3.1%, up from an assumed 2.6% in 2012. For 2015, growth is estimated at 3.3%.


NYC-based PIRA Energy Group believes that Brent crude prices likely to be poised to move back higher. On the week, U.S. product stocks declined, while in Japan crude stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Brent Crude Prices Likely To Be Poised To Move Back Higher

Brent crude prices have moved into the lower half of their recent trading range but are likely to be poised to move back higher as refiners return from maintenance. U.S. Gulf crudes are currently weaker compared to Brent with building U.S. inventories but should improve relatively over the next month. Atlantic Basin distillate cracks are firm and should strengthen further for another month with tight inventories in the Atlantic Basin in general despite large imports arriving into Europe. Gasoline cracks will stay seasonally weak. Refining margins in the U.S. are healthy with advantaged crude pricing but margins in Europe will stay thin.

Another Huge U.S. Product Inventory Decline

Continued strong product demand combined with an extraordinary decline in product output, namely gasoline, pulled product inventories down for the week ending November 1, the largest product stock decline of the year. The weekly gasoline output decline was largely due to a DOE adjustment of inventory from finished to blending components. Total commercial stocks fell as the crude inventory increase moderated. With crude runs set to move substantially higher, crude stock increases should disappear, and we are expecting a flat profile next week, although Cushing crude stocks build again.

Japanese Crude Stocks Jump on Higher Imports

Crude imports took a big jump on the week, which led to a large crude stock build despite higher runs. On the product side, gasoil stocks drew to another record low, with a big pickup in incremental exports. Kerosene demand was surprisingly strong for this time of year, and stocks drew for the second straight week.

Rising Crude Stocks Weaken U.S. Prices

Rising crude stocks in Canada, West Texas and the Gulf Coast weakened prices in those markets and began spilling over into Cushing – currently the strongest region, on a relative basis. North American Midcontinent crude prices have dropped sharply relative to global benchmarks, and have all moved into contango. With southern markets now reconnected, Cushing can't get strong until the Gulf Coast gets strong.

Lower Gasoline Prices Push U.S. Vehicle Sales Towards Light Trucks

Lower gasoline prices are not only helping to sustain the recovery in U.S. light vehicle sales, but have also helped boost the market share of light truck sales, which should have positive implications for gasoline demand growth. U.S. light vehicle sales for October were released last week and they showed resilience against the impact of the government shutdown and continued below trend growth in disposable income.

U.S. Alternative Fueled Vehicles Slow to Gain Traction

October U.S. light vehicle sales indicate purchases of hybrids, electrics, and diesels continue to languish as fuel prices have eased. Market shares remain low, but appear consistent at this point with PIRA's penetration assumptions used post 2014. The biggest category of alternative vehicle sales remains hybrids with 33,565 sold in October 2013, a gain of only 0.8% versus last year and lagging overall vehicle sales growth of 10.5%.

Saudi Formula Crude Prices for December Show No Breaks for Asian Refiners

Saudi’s formula prices for December were recently released. In Asia, differentials were raised for all crudes other than Arab Heavy which was left unchanged. This follows a lowering on light grades in November with a range of $0.20 (Arab Light) to $1.30/Bbl (Super Light). Heavier grades in November were raised. Asian margins have been soft, but runs will rise in November and December. The December tightening of terms came in more aggressively than a recent small survey of Asian refiners had been expecting.

Modest Indian Oil Demand Growth Is Expected, Provided Macro Stability Continues

The Indian economy has recently faced a triple-whammy of a falling currency, accelerating inflation, and weakening growth. The currency situation has made oil imports more costly, and this has contributed to a recent slowing in oil demand growth. With a new central bank governor firmly in charge and U.S. Fed’s monetary stimulus continuing for now, the economic situation is starting to look better. Oil demand should begin to see improvements, as long as the macro stability continues.

Both Near-Term and Longer Price Risks For Natural Gas Are Biased to the Downside

Both near-term and longer-price risks for global oil and North American natural gas are biased to the downside. In the case of oil, the potential for volume recovery in MENA coupled with an upside for shale production in Permian and elsewhere are key bearish factors. With regard to North American gas, strong growth in Marcellus is likely to further accelerate as infrastructure is added.

Positive U.S. Employment Shocker Changes Outlook for Growth and Monetary Policy

The most important take away from this week’s data was that U.S. employment growth is now clearly strengthening. This is very positive for the short-term outlook, as employment gains are basically synonymous with economic growth. It also has major implications for monetary policy.

Financial Stresses Continue to Ease and Remain Low

The European Central Bank (ECB) cut key interest rates this past week, somewhat unexpectedly, and the Euro sold off against the U.S. dollar. It remains to be seen if the rate cut will impact the trajectory of the ECB balance sheet which has been showing a steady decline and had been reinforcing a strengthening Euro versus the U.S. dollar. European yield spreads have trended lower and key CDS quotes remain very low (bottom quartile), with several hitting new lows. Gold broke below $1,300/oz.

Global Equities Mixed

U.S. markets were mostly higher on the week with the growth indicator strongly outperforming the defensive indicator on the back of a strong employment report and better than expected GDP for 3Q. Banking and materials were the best performers. Internationally most of the tracking indices fell back with Latin America posting the poorest performance. Brazil and Mexico showed sizeable declines on the week, but Argentina was higher.

U.S. Economy Continues to Display Good Growth

The U.S. economy is broadly displaying good growth on a host of fronts. The most recent GDP statistics for 3Q were stronger than expected at 2.8%, annualized, with all sectors contributing to growth. PIRA conservatively estimates 2013 GDP growth to be 1.7%, and 2014 at 2.5%. The ISM for October, both overall and new orders, moved modestly higher and clearly remains in a strong expansion mode. The Chicago PMI for October was very strong.

Tanker Operator’s Hopes Have Been Buoyed Recently

Tanker operator’s hopes have been buoyed recently by a sharp upturn in crude tanker rates.  Historically, tanker rates over the last two months of the year are the seasonally strongest, and this seems to be playing out this year.  VLCC rates have risen to the highest levels since November 2012, supported by the end of the Far East refinery maintenance period and record levels of Chinese imports.  Western fixtures are also high in November as term contract formula prices for Saudi, Kuwaiti and other Mideast grades, which are indexed to U.S. domestic sour crudes, are more than $10.00 per barrel below those for shipments to Europe and Asia.

U.S. Propane Market to Stay Tight

Propane continues to lead the way for the U.S. NGL complex. The midcontinent is still in dire need of material to dry the record corn crop, just as winter conditions are approaching.  Exports will remain quite high all through this year and beyond, keeping inventories relatively low.

Ethanol Values Tumble

U.S. ethanol prices decreased to a three-year low during the week ending November 1 due to higher output and lower corn costs. Falling gasoline values were also a drag on the market.

Ethanol Output Falls/ Inventories Rise

U.S. ethanol production fell to 902 MB/D the week ending November 1, dropping from an annual high of 911 MB/D in the preceding week.  Inventories rose by 204 thousand barrels to 15.2 million barrels from a four-year low of 15.0 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. 

Click here for additional information on PIRA’s global energy commodity market research services. 


GlobaldatabluelogoWith high operating and development costs surrounding many offshore Arctic fields, profit can only be achieved with decreased state taxation rates under current market conditions, says an analyst with research and consulting firm GlobalData.

Domagoj Baresic, GlobalData's Analyst covering Upstream Oil & Gas, states that the interplay between potential profit gains and high costs will likely be most evident in the Russian Federation, which has a strong state policy of developing upstream resources in its untapped Arctic frontier.
According to GlobalData, Russia has 27 confirmed offshore oil and natural gas planned fields in the Arctic Circle, some of which are among the last undeveloped large fields in the country, boasting more than 100 million barrels of oil equivalent.

In Russia, developers pay mineral extraction and export duty taxes dependent on oil prices and currency exchange rates, resulting in the state take reaching 90% of total revenue.
Baresic says: While operating and development costs cannot be significantly reduced, the best hope for turning discoveries into profitable producing fields is by decreasing state take through tax alleviation.

Projects such as the Prirazlomnoye field, which is expected to begin production in early 2014, could not have been developed without such tax alleviation, which was achieved mainly through reduced export duties and applying Mineral Extraction Tax (MET) relief.
Currently, a 50%-reduced export duty applies to oil produced from Prirazlomnoye, and since the field is located north of the polar circle, the first 257 million barrels of oil will not be subject to MET. These tax incentives are projected to reduce the state take from 90% to 50% and increase the Internal Rate of Return from 2% to 11%.
However, even with extra incentives, many fields in the Arctic could prove unprofitable under the current fiscal regime, giving rise to the possibility that the entire present system of tax alleviation measures might be reconsidered in the future, concludes the analyst.

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