NYC-based PIRA Energy Group believes that crude prices are setting the stage for a significant bounce from the recent downturn. In the U.S., the stock excess widens despite strong demand growth. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Asia Pacific Oil Market Forecast
Crude prices are setting the stage for a significant bounce from the recent downturn. Product demand growth for the remainder of the year remains constructive, and products will get a lift from fall maintenance but the market will remain long product, which will make recovery in Asian refinery margins slow to materialize. Most noted will be a rotation out of gasoline crack strength, which has been leading and holding up the product barrel. Gasoil demand picks up the remainder of the year, but the overall uplift for gasoil balances and cracks will be notably muted due to rising supplies from new refinery startups, and high stock positions, particularly in Europe, but also in Asia.
U.S. Stock Excess Widens Despite Strong Demand Growth
Crude stocks drew this past week but this was more than offset by a product stock build, leaving stocks at a new record high and 157 million barrels higher than last year. Some 71% of the excess is in crude oil and distillate. Gasoline stocks are just 1.3% higher than last year despite historic refinery runs which is a tribute to strong demand growth.
European Oil Market Outlook
Brent crude prices lost ground over the last few weeks and are now under $50/Bbl for prompt cargos versus $60-65/Bbl in May and June. This decline has been led by the back of the market and is the result of a dramatic swing in market sentiment. However, PIRA expects prices to ultimately improve as physical balances tighten – more next year than in the remainder of 2015.
Spot U.S. Ethylene Prices Routed
Spot U.S. ethylene prices collapsed last week on worrying economic headwinds, lower feedstock prices, and high cracker utilization rates. Spot ethylene lost 7¢/lb or nearly 25% to settle at cycle lows of just 22.75¢/lb for September delivery. U.S. steam cracking margins plummeted with ethylene prices. LPG cracks, for both propane and butane dropped over 20% to near 26¢/lb ethylene. Ethane margins dropped to just 19¢, three cents better than natural gasoline cracks per PIRA calculations.
Medium Term Marked Down, Longer Term Unchanged
Recent upward revisions to the medium term supply outlook have caused us to slow the recovery in price over the next several years in our Reference case crude oil price outlook. However, post-2020, our balances still suggest a need for growing volumes of higher cost supply since US shale production is unlikely to maintain pace with global oil demand growth.
U.S. Ethanol Prices and Margins Fall
Ethanol prices resumed their descent the week ending August 7, pressured by plummeting oil values and a flood of imports from Brazil. After improving the two prior weeks, manufacturing margins also decreased.
U.S. Output Up; Inventories Down
Ethanol output increased to 965 MB/D, up from an eleven-week low 961 MB/D the week ending August 7. Stocks declined by 710 thousand barrels to 18.5 million barrels.
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.
