NYC-based PIRA Energy Group believes that the oversupply of crude will grow into 2015. In the U.S., seasonal low in runs leads to large U.S. product stock decline. In Japan, crude runs ease back, but crude stocks still draw. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

Asia-Pacific Oil Market Forecast
Oil prices are likely to remain soft, even assuming a substantial cut at the November 27th OPEC meeting, though there would be a psychological bounce if cuts are enacted as PIRA assumes. The oversupply of crude will grow into 2015, with stock-building forecast for each of the first three quarters. Without an OPEC cut by year-end, the market would deteriorate further as the imbalances would be that much greater.

Seasonal Low in Runs Leads to Large U.S. Product Stock Decline
Overall inventories fell this past week, 2.7 million barrels more than the decline last year for the same week. Products led the inventory decline, the largest weekly decline this year as refinery runs hit their seasonal low and reported demand surged on the week. A large chunk of this demand increase was in distillate largely because of peaking harvest demand and in propane because of downstream movements in preparation for the winter. Compared to last year, the stock excess narrowed.

Japanese Crude Runs Ease Back, but Crude Stocks Still Draw
Crude runs eased back, while crude imports rose from the low level seen the previous week, building crude oil stocks. Gasoline demand was slightly weaker and stocks built modestly. Gasoil demand rebounded from a low level and stocks drew slightly. Refining margins remain soft but all the major product cracks improved on the week.

Refinery to Restart in U.S. Virgin Islands
The government of the U.S. Virgin Islands announced that it had reached an agreement with Atlantic Basin Refining (a U.S. firm) to restart the Hovensa refinery on St. Croix. That refinery operated on imported crude and primarily supplied the U.S. marketplace until its closure in 2011 – a time when all Atlantic Basin refining was under pressure. Those economics have since changed with the U.S. shale crude revolution because the refinery is in the United States and as such can use U.S. crude without any regulatory restrictions. Furthermore, the Virgin Islands have a blanket exemption from the Jones Act.

NGL Prices Rebound on Demand Jump
U.S. LPG prices rebounded this week on the first propane stock draw of the season. The sizable draw helped propel December NYMEX propane futures 3.4% higher on the week. Cold weather increased the need for heating fuels in the reference week with heating degree days growing by 54% week-on-week. Apparent demand jumped by 335 MB/D (28%) from the week earlier to 1.5 MB/D. Butane prices rose 4.6% to $1.12/gal, garnering strength from steadily decreasing weekly NGPL stocks in the EIA weekly data. Ethane prices bounced 1.8¢ higher with higher natural gas prices.

Ethanol Output Soars
Ethanol production spiked to a ten-week high 937 MB/D the week ending October 24, up from 896 MB/D during the preceding week. Inventories declined for the fourth consecutive week, dropping to a 5-month low 17.0 million barrels, led by a 670 thousand barrel draw in PADD I.

U.S. Cash Margins Rebound
Cash margins for ethanol manufacture in the U.S. rebounded during the end of October following eight straight weekly declines. Many mills in the South-Central region of Brazil will shut down four to six week early, lowering ethanol output for the season.

Probability of an Iranian Nuclear Deal Up to 50%, nut Iranian Politics Add Complications
Less than one month remains before the November 24th expiry of the interim nuclear deal and PIRA understands that talks are turning more creative. Discussions have reportedly shifted to the idea of disconnecting cascades of linked centrifuges that would reduce enriched uranium fuel output but avoids outright dismantling of individual centrifuges. PIRA believes the probability of reaching a final deal has moved up to 50% as U.S. President Obama and Iran President Rouhani, and Iran Foreign Minister Zarif are keen to do a deal. However, ultimately it is the Supreme Leader who approves the terms of any deal and his acceptance remains unclear.

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.