NYC-based PIRA Energy Group reports that Brent crude prices came off their early September highs. On the week, the U.S. had strong product demand trend but a large crude stock build. In Japan, crude stocks built. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Brent Crude Prices Came Off Their Early September Highs
Brent crude prices came off their early September highs, but the further crude price declines will be limited by tighter near-term supply/demand balances. Supply losses remain huge. Refinery runs bottom in October as maintenance peaks but then runs recover. The WTI-Dated Brent spread is stabilizing near negative $5-6/Bbl. Atlantic Basin gasoline cracks should stay generally weak as inventory coverage remains ample. Middle distillate cracks should move higher over the next few months. Margins will recover in the weeks ahead, led by growing middle distillate strength.
Strong U.S. Product Demand Trend but Large Crude Stock Build
Product inventories declined for the week ending September 27, but this was overwhelmed by a crude inventory build. The resulting 5 million barrel inventory increase is in sharp contrast to last year's inventory decline for the same week last year. This widened the year-on-year inventory excess to 2.2%. Most of the excess is in gasoline.
Japanese Crude Stocks Build; Turnarounds Continue
Crude stocks built due to imports rising following the impacts of the most recent typhoon, while gasoline and gasoil stocks drew. For gasoline, the draw was due to good demand, while for distillate it was driven by low refinery yield and higher incremental exports. The kerosene stock build rate increased, but the 4-week build rate remained about the same. Refining margins continue to slowly improve from poor levels.
Saudi Formula Crude Prices for November Reflect Weak Asian Margins
Saudi’s formula prices for November were recently released. In Asia, differentials were lowered most aggressively on lighter grades, but the differentials for Arab Medium and Heavy were raised, with Heavy being raised the most. Asian margins have been poor, so the more generous terms on the lighter grades were in line with market economics.
Latest Oil Inventory Update: Continued Low Stocks
The final June data and preliminary July data for OECD Europe were released this past Thursday and when combined with U.S. and Japanese estimates continue to point to low inventories in the three major OECD markets. The June stock data were revised lower and the second quarter is now showing an inventory decline compared to last month's increase. Relative to the year earlier, stocks began the year with an excess and ended August with a deficit.
Ethanol Prices and Cash Margins Soar
Ethanol values in Chicago rose during the week ending September 6 because of the scarcity of corn in the Midwest, causing production to fall to a 22-week low and inventories to drop to the lowest level in two months. Cash margins for ethanol production rocketed to the highest level since November 2011.
Ethanol Production Rebounds
U.S. ethanol production rose to a 4-week high of 848 MB/D the week ending September 6 from 819 MB/D in the preceding week. Some plants restarted after routine summer turnarounds. In addition, facilities in the Midwest have been able to secure corn via barge and rail from as far south as Mississippi, where the 2013/2014 harvest has already begun.
Relatively Low Propane Stocks to Start Fourth Quarter
U.S. propane stocks entered the fourth quarter relatively low and are likely to remain so given crop drying activity, petchem feed use and growing exports. Ethane stocks continue relatively high, while butane inventory is dropping as gasoline blending picks up the pace. The contango in Asia has widened helping support winter stock building. Propane continues as a preferred olefin cracker feedstock in Europe, helping sustain demand until winter requirements pick up.
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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