NYC-based PIRA Energy Group Reports that October’s oil demand weakness is deceptive and product demand will soon get a substantial lift to propel refining margins higher. On the week, U.S. commercial oil stocks fell, while Japanese crude runs have begun to rise and crude stocks build. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
October’s Oil Demand Weakness is Deceptive
PIRA projects world GDP growth will accelerate next year and believes with tail risks minimized and fiscal constraints declining, the risks to growth are to the upside. October's oil demand weakness is deceptive and product demand will soon get a substantial lift to propel refining margins higher and crude oil prices as well after a couple more weeks of softness.
U.S. Commercial Inventories Fall W/W
Overall U.S. commercial inventories fell the week ending October 25, as a very strong increase in reported demand pulled product stocks down, leading to the largest weekly inventory decline of the year. This more than offset the crude stock increase. Crude stock increases will begin to moderate and turn into inventory declines as imports decline and runs increase in November.
Japanese Runs Rise Out Post-Turnaround, Margins Still Soft
Japanese runs have begun to rise and implied crude imports moved higher building crude stocks. Gasoline demand decreased and stocks built slightly. Gasoil demand increased, stocks drew and remain just off record lows. Kerosene demand surprisingly was strong which produced a small stock draw. Refinery margins remain soft and were slightly lower on the week.
August DOE Monthly Revisions
Compared with the weekly preliminary data, total demand was revised 110 MB/D lower, with gasoline and distillate decreasing 31 MB/D and 21 MB/D, respectively. Compared to 2012 levels, demand has declined a modest 65 MB/D, or -0.3%. Kero-jet demand clearly outperformed, up 3.7%, while gasoline underperformed -0.7%. Total commercial stocks were revised higher by 2.7 MMBbls, with crude being raised 3.3 MMBbls.
October Weather: All Regions Warmer than Normal
October turned out to be warmer than both the 10-year and the 30-year normal for the three major OECD markets. All three markets came in warmer than the 10-year normal and combined HDDs were 15% below the 10-year normal and 23% warmer than the 30-year normal.
Competition for LPG Supply is Intensifying
The competition for product is intensifying. A frenzy is occurring in the U.S. mid-continent as farmers seek propane for drying the quite large and wet corn crop. On-going supply issues from the North Sea, strong pull from Latin America as well as seasonal and other needs for Asia and Europe are all pressuring markets, leading to higher prices.
Corn, Ethanol, and RIN Prices Fall in October
U.S. corn and ethanol prices declined in October, as expected. Ethanol manufacturing cash margins remained healthy as the market was tight with four-year low inventories.
Ethanol Output Soars
U.S. ethanol production rose for the third consecutive week, surpassing 900 MB/D for the first time since June 2012. Output was 911 MB/D, up from 897 MB/D in the prior week as the 2013/2014 corn harvest is more than half complete in several Corn Belt states and more feedstock is available.
Biofuel Output Increases in 2013
After years of rapid growth, world biofuels production was flat in 2012. Growth has resumed this year, boosted by increases in Brazilian ethanol manufacture and U.S. biodiesel production, along with modest gains in other countries.
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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