NYC-based PIRA Energy Group reports that the U.S. to allow exchange of Mexican heavy crude for domestic light crude. In the U.S., commercial inventories increased this past week, modestly widening the year-on-year stock surplus. In the Japan, crude runs continued rising, while low level of crude imports drew crude stocks back. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
U.S. to Allow Exchange of Mexican Heavy Crude for Domestic Light Crude
The U.S. is set to allow the exchange of up to 100 MB/D of Mexican heavy crude for U.S. light crude. PIRA believes this move will add modest support to U.S. crude prices relative to international levels by reducing the risk of price disconnects. A lighter crude slate in Mexico increases light product yields and allows for somewhat higher runs. In our view, this development represents another incremental step towards easing restrictions on U.S. crude oil exports, but not a fundamental change in policy.
A Slight U.S. Stock Build
Commercial inventories increased this past week, modestly widening the year-on-year stock surplus. In contrast to recent weeks, product stocks drew while crude inventories built. Crude stocks are now almost 94 million barrels higher than last year. The bulk of the remaining product excess to last year is in distillate and propane with the latter showing up in other products.
Japanese Holiday Supports Gasoline
Due to the mid-August holiday, two weeks of data were reported this past week. Crude runs continued rising, while low level of crude imports drew crude stocks back below 100 MMBbls. Gasoline demand was strong both weeks and stocks drew to near record lows. Gasoil demand was depressed in the latest week due to the holiday and stocks built. The kerosene stock build rate accelerated on low seasonal demand. The indicative refining margin has improved a bit on better gasoil cracks and gasoline cracks, which are still characterized as strong.
EIA Proposing Some Significant Changes to Petroleum Data
The EIA published a number of significant proposed changes to their petroleum forms and data in a recent Federal Register Notice. Adding complete balances for a PADD II split into PADD II-A (Northwestern PADD II), and PADD II-B, the balance of PADD II, is one of the major changes. They propose to consolidate the number of breakouts in jet and distillate balances. EIA also proposes to stop collecting crude oil stocks held at production lease storage – currently about 32 million barrels – and remove those volumes from all historical and forecast balances. They are proposing to add better coverage of in-transit stocks moved via rail, tanker, and barge. They are also proposing reorganizing the gasoline balance along the lines of gasoline blended with ethanol and gasoline not blended with ethanol.
U.S. Waterborne LPG Exports Slump
Waterborne LPG exports from the U.S., as tallied by PIRA shiptracking efforts were just 3.3 MMB (470 MB/D) last week, a significant 45% decrease from the previous week’s sailings. Approximately 60% of these shipments are headed to the Latin America/Caribbean region. Worsening arbitrage economics over the past few weeks help to explain this latest decrease in export activity.
U.S. Ethanol Recover some of the Midweek Loses
Ethanol prices were pulled down August 12 because of a USDA report that was bearish for corn values. Assessments rebounded by the end of the week as buyers returned.
U.S. Output Flat
The ethanol industry was stable the week ending August 14, with production remaining at 965 MB/D after having fallen to an eleven-week low 961 MB/D two weeks earlier. Stocks increased by 32 thousand barrels to 18.6 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.
