NYC-based PIRA Energy Group believes that Brent crude prices will move higher after some first half July weakness. In the U.S., there was a crude stock draw and product stock build. In Japan, crude runs begin to rise and stocks draw. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
European Oil Market Forecast
Brent crude prices will move higher after some first half July weakness with tighter global crude markets and reduced OPEC spare capacity even as Saudi Arabia makes up for lower Iraqi exports. Urals differentials will firm over the next two months. Gasoline cracks still have a bit of strength for now, but with ample inventories they will narrow next month and especially in September. Distillate inventories, while currently rising, remain low and will tighten in the Atlantic Basin in the third quarter, driving diesel cracks higher.
Crude Stock Draw and Product Stock Build Results in Flat Commercial Stock Profile
With a 14.7 million barrel commercial stocks draw this week last year, it was inevitable that the year-over-year stock deficit would narrow. Last year's commercial draw consisted of a 10.3 million barrel draw in crude, a 5.9 million barrel draw in the four major refined products, and a 1.6 million barrel build in other product stocks. Consequently, even though crude stocks drew last week, crude stocks flipped from a deficit to a surplus versus last year.
Japanese Crude Runs Begin to Rise, Stocks Draw
Crude runs have begun moving higher as turnarounds begin to wind down. Crude stocks drew marginally as imports remained low. Finished product stocks also drew slightly. While refining margins remain soft, they improved slightly due to improved light product cracks overcoming a weaker fuel oil crack.
LPG Scorecard
U.S. stocks of LPG continue to rebuild from low levels at record rates. NGL production rates soared to a record high in April, with significantly more growth expected this year. New fractionation capacity and export infrastructure is being rapidly deployed to meet surging oil production. Propane in Europe and Asia is well supplied, with seasonally low demand inhibiting further price strength. Butane markets are tighter and discounts to naphtha in both regions have the product favored for petrochemical feedstocks use.
U.S. Ethanol Prices Declined During June
Ethanol prices fell during most of June as output reached a record high, stocks built to a yearly peak, and corn costs were the lowest since February. Prices showed some strength late in June as production declined when problems with railcar delays returned.
Ethanol Output Increases
U.S. ethanol production rebounded to 953 MB/D the week ending June 27, up from 938 MB/D during the preceding week. Though last week's output was significantly less than the record 972 MB/D two weeks earlier, it was still the second highest since December 2011.
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.
