NYC-based PIRA Energy Group believes that ongoing growth of shale continues to dominate both the oil and gas outlooks. On the week, the U.S. product stock draw resumes, while Japanese commercial stocks drew sharply. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Shale Growth Continues To Dominate

The ongoing growth of shale continues to dominate both the oil and gas outlooks. Even with a slowdown in growth from the recent pace, shale will remain a major contributor to global liquids growth and the US will still face a steady decline in import requirements. However, we continue to face increasing violence in Iraq, significant outages in Libya coupled with political turmoil, sanctions and extremely uncertain negotiations with Iran, growing unrest in Venezuela, and an unending war in Syria that could spread violence anywhere in the Middle East. The bounceback of global demand growth in 2013, even during a subpar economic growth year, confirms our view that reports of the death of demand growth are premature.

U.S. Stock Draw Resumes

Overall commercial oil inventories drew this past week with product stocks falling and crude building. This was the sixth consecutive weekly product stock decline and fifth consecutive crude inventory build. The entire product inventory decline was outside of the three major light products, for they built a combined 0.6 million barrels. A similar major light product inventory profile is forecast for next week. In contrast, crude inventories are forecast to decline, for the Gulf Coast faced extended weather related delivery delays which will keep imports low.

Japanese Commercial Stocks Draw Sharply

Total commercial stocks were sharply lower by 8.6 MMBbls due to a sharp drop in crude stocks and a much lower draw in finished products, which was mostly kerosene. Runs eased slightly and crude imports plunged. Gasoline and gasoil demands fell back slightly, and gasoline stocks build modestly, while gasoil stocks still were able to post a small draw on much lower yield and higher incremental exports. Kerosene demand perked up and the draw rate came in at its highest rate of the year

U.S. Refiners Have Significantly Reduced Yield of Fuel Oil + Asphalt

U. S. refiners have typically had the lowest yield of residual fuel products (residual fuel oil plus asphalt) compared to other refiners worldwide. However, beginning in 2008, U.S. refiners have reduced their yield of fuel oil/ asphalt at a faster rate than can be accounted for by facilities additions alone, from over 7% to less than 5%. With continued substitution of light shale crudes, PIRA estimates that the yield of fuel oil plus asphalt for U.S. refiners will continue to decline to around 4%.

U.S. Propane Stocks Will Continue Lower

Export cancellations and fog delayed shipping from the USGC led to a relatively low stock draw last week. The pace of inventory decline should pick up as new record low positions will continue to be set. The March trading arb is open. Winter is not yet over but sentiment shifted as it is close to winding down, but not before some late season cold blasts.

Ethanol Manufacturing Margins Rise

U.S. ethanol production margins improved significantly the week ending February 14 due to higher ethanol values, stable corn costs, and lower natural gas prices. Rising DDG and RIN values also provided support

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.