NYC-based PIRA Energy Group reports that western Canadian and Bakken crude price differentials strengthened in January. On the week, U.S. stocks declined. In Japan, crude and product stocks also drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Western Canadian and Bakken Crude Price Differentials Strengthened
Western Canadian and Bakken crude price differentials strengthened in January, as frigid temperatures in the North slowed production growth, and rail volume continued to rise. Cushing stocks were flat in January, but WTI moved into backwardation in anticipation of large stock draws following the recent startup of TransCanada's Gulf Coast pipeline.
Another U.S. Stock Decline
January has been remarkable with U.S. oil inventories falling over 700 MB/D or some 22 million barrels. This past week contributed 5.3 million barrels of the decline, all of which was in products since crude oil inventories built slightly
Japanese Crude and Product Stocks Draw
Total commercial stocks drew 5.9 MMBbls on the week. Crude runs rose slightly and implied crude imports eased sufficiently to draw crude stocks 2.4 MMBbls. Finished product stocks also drew with declines in kerosene, fuel oil, and a more modest draw on gasoil stocks. Gasoil demand was relatively strong at 960 MB/D. Kerosene demand was surprisingly lower, but a low yield allowed for a strong stock draw rate of 139 MB/D for the week.
Aramco Crude Price Differentials for March
Saudi Arabia's formula prices for March were recently released. Pricing adjustments for the key markers were lowered for Asian destinations on all grades of crude, other than Arab Heavy. The greatest reduction was on the lightest grades, which saw more generous terms by as much as $1.40/Bbl. European pricing differentials were raised across the board, with the greatest increase at the heavy end. Pricing for purchases destined to the U.S. were left unchanged.
U.S. Propane Remains the Market Leader
U.S. propane remains the market leader as low inventories and on-going cold weather provides price support. The economics of moving cargoes from the USGC to either Europe or Asia has turned negative. Indeed, North Sea cargoes are due to arrive in the Northeast, as some U.S. export shipments are also canceled. The redirection of propane to the mid-continent seems to have been effective in taking some of the froth out of the market.
Ethanol Prices Higher
U.S. ethanol prices increased the week ending January 31 as weather-related production problems and rail car shortages persisted. Demand was strong as the manufacture of ethanol-blended gasoline rose to a five-week high, and inventories declined.
Ethanol Output Decreases
U.S. ethanol production declined to a three-week low of 895 MB/D the week ending January 31 from 900 MB/D in the preceding week as brutally cold weather and power shortages limited output. Inventories dropped by 193 thousand barrels to 16.7 million barrels, the largest week-on-week draw since October.
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.
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