NYC-based PIRA Energy Group reports that midcontinent differentials strengthen. In the U.S., first large stock decline since early August. In Japan, crude runs decline with higher turnaround activity. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
Midcontinent Differentials Strengthen
In September, the WTI discount to Brent and LLS narrowed, while differentials to WTI improved for Canadian, Rockies and Midland grades, as crude stocks fell in each of those regions. Forecasts of growth in U.S. shale production next year have been reduced. Higher crude runs, lower imports, more exports, pipeline line fill, and more rail east and west are absorbing this year's production growth.
First Large Stock Decline Since Early August
This past week a dramatic swing in product stocks from a week earlier build to a draw contributed to pulling overall commercial inventories lower. The sharpest week to week decline in runs this year, lower product imports and stronger product demand all contributed to the substantial product inventory decline. The crude stock decline added to the overall decline despite runs falling and despite a recovery in imports.
Japanese Crude Runs Decline with Higher Turnaround Activity
Crude runs dropped as turnarounds gear up. Crude imports rose which built crude stocks. Finished product stocks finally declined after having risen steadily since mid-June. Gasoline and gasoil demands were slightly higher, with small stock draws for each. Kerosene demand perked up due to consumer restocking and the stock build rate came in at 135 MB/D. Refining margins remain soft. Light product cracks were slightly weaker, while fuel oil cracks firmed.
Aramco Announces Another Round of Price Reductions for Differentials in November
Saudi Arabia's formula prices for November were just released. Another round of reductions in differentials was enacted for all the key markets with the most aggressive reductions again being to Asia. U.S. pricing was lowered $0.40/Bbl, for all but the lightest grades, but Saudi crude is still disadvantaged versus domestic grades by $1.50-2.50/Bbl. In Europe, against Urals crude in both NWE and the MED, Saudi crude was competitive based on current pricing in August, but that advantage eroded sharply in September, so the reductions were warranted to restore competitiveness. In Asia, the reduction will be welcome news to refiners as refining margins have only recovered to statistical means after extreme weakness seen during the summer, and have again begun to erode.
U.S. LPG Prices Rebound
U.S. propane prices shrugged off crude oil and gasoline price weakness and rebounded strongly last week from the prior week's selloff. Stronger demand and a smaller stock build propelled prices higher. Butane prices were unchanged, despite RBOB gasoline's 4.2% rout. Next week, U.S. prices should find support in higher seasonal and agricultural demand and the nearing end of inventory increases.
Ethanol Stocks Soar
U.S. ethanol production fell to a six-month low 881 MB/D last week as some plants underwent routine maintenance turnarounds. Stocks were up 236 thousand barrels to 18.8 million barrels, the highest level since March 2013.
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.
