NYC-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.
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