NYC-based PIRA Energy Group believes that Permian Basin is now being targeted for tight oil production. The United States is now in the heart of the refinery turnaround period which means a max crude stock build. In Japan crude stocks declined. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Permian Basin Tight Crude Oil Update
A source of conventional production for decades, the Permian Basin is now being targeted for tight oil production, using horizontal drilling and hydraulic fracturing. Relative to Bakken and Eagle Ford, the Permian is in an earlier stage of development. To date, production growth in the Permian more closely resembles the steady increase seen in Bakken than the rapid growth in Eagle Ford.
Max Turnaround Period = Max Crude Stock Build
The United States is now in the heart of the refinery turnaround period. March 14 should be the max turnaround week, after which it drops the subsequent two weeks, if everything comes back as planned, which would be unusual. Historically, unexpected delays have added some 400 MB/D to monthly downtime. Not surprisingly, crude runs hit a low for the year this past week and crude stocks had a very large stock build. Runs are still well above year ago levels as advantaged crude provides U.S. refiners with good margins.
Japanese Crude Stocks Decline
Total commercial stocks dropped on the week. Crude stocks fell, but finished product stocks were only modestly changed, though gasoil stocks fell to a new yearly low and remain very lean. The kerosene stock draw rate moderated further as demand eased and yield rose. The indicative refining margin was modestly higher with gains in gasoline cracks more than offsetting lower cracks in the other products.
Freight Market Outlook
After a strong start to the year, when tanker rates in a number of key trades registered their highest levels in six years, crude tanker rates dropped precipitously. The Baltic dirty tanker index doubled from 674 at the end of November 2013 to 1,344 on January 20, before dropping back to 676 recently. This has touched off a debate on whether the spike in rates was a weather-related, one-off event or a precursor of tighter balances and better times to come.
Ethanol Prices Soar
U.S. ethanol prices soared as corn values rose to the highest values since September. Product was tight with prices at the coasts reaching seven-year highs. Ethanol manufacturing cash margins reached the highest level in 10 weeks. Brazil is in a terrible drought which will likely cause serious damage to this year’s (2014-2015) harvest.
Low Stock Levels
U.S. propane storage will finish the heating season at a quite low level. While stock building should start in 2Q, year-on-year comparisons will be far lower than last season. The pace of exports will certainly remain firm in the months ahead. As the heating season winds down, more chemical usage will be needed in overseas markets and LPG is being priced to displace naphtha.
Upcoming PIRA Conference Calls--North American Gas Market Presentation
PIRA will conduct a 40-minute online presentation and discussion (via WebEx) for North American Natural Gas Retainer clients, titled North American Gas Market Outlook: Filling the Hole Left in Storage, on Friday, March 21, at 3:30pm EDT. Contact PIRA at This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.
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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