YC-based PIRA Energy Group believes that Oil demand growth will improve in 2H14 with stronger economic growth. In the U.S., with crude stock draws expected and improving product demand, stock builds will continue to decline and ultimately become stock draws in the weeks ahead. In Japan, crude runs were marginally changed while crude imports remained low enough to limit the stock build. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
World Oil Market Forecast
Oil demand growth will improve in 2H14 with stronger economic growth. Iraq’s crude production losses in 2H14 will be made up primarily by Saudi Arabia, but global spare capacity will fall to just 1.4 MMB/D August through November. This is expected to support higher crude oil prices. In 2015, lower Iraq production will again require higher output from Saudi Arabia, but much less so because of weaker demand from higher prices and assumed increases elsewhere in OPEC. Refinery margins will be somewhat weaker because of higher crude prices.
U.S. Stock Building to Slow Down
With crude stock draws expected and improving product demand, stock builds will continue to decline and ultimately become stock draws in the weeks ahead. This past week overall U.S. oil inventories increased. This widened the year-on-year inventory deficit to 25 million barrels with all major categories below last year. Even though PIRA is forecasting a stock draw for next week’s DOE data, the year-on-year inventory deficit will narrow because of last year’s very large inventory decline for this particular week.
Japanese Crude Runs Stay Low, Product Demands Rise
Crude runs were marginally changed while crude imports remained low enough to limit the stock build to less than 1 MMBbls. Finished products drew 2.6 MMBbls. Product demands were all higher, leading to broad based stock draws. Refining margins were little changed but remain soft.
Inventory Build Rate Slows, But Climb in Weeks Ahead
U.S. weekly propane prices strengthened 1.3% to 107.8¢/gal this week on a lower-than-expected stock build. For the second week in a row, the total propane/propylene inventory increase was below three million barrels. The latest data from the Department of Energy showed that total C3 (propane + propylene) stocks increased by 2.43 MMB, below the monster 3.4 MMB+ rate of increase observed in late May and early June. Strong inventory builds over the next few weeks, due to dramatically lower exports, should reduce or eliminate the year-on-year stock deficits caused by this winter’s record conditions.
U.S. Ethanol Prices Tumble
Ethanol prices tumbled last week as record production during the week ending June 13 greatly outweighed the robust demand, declining inventories and rising corn costs. Margins for ethanol manufacture were the lowest since February, partly due to plunging co-product DDG values as China stopped buying this animal feed component from the U.S. on concerns it might contain unapproved genetically modified organisms.
Ethanol Production Plummets
U.S. ethanol production plummeted to 938 MB/D the week ending January from an extraordinary 972 MB/D during the previous week as weather-related issues in the Midwest curtailed operations at several plants. This was the largest week-on-week decline since January.
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.
