NYC-based PIRA Energy Group reports that midcontinent fundamentals improve as weather turns cold. In the U.S., product stocks build while crude draws. In Japan, there is a big crude stock draw, but weaker product demands. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Midcontinent Fundamentals Improve as Weather Turns Cold
Crude oil fundamentals improved throughout the Midcontinent in December, with stocks declining at least modestly at Cushing, Patoka, West Texas, the Rockies, Western Canada and the Gulf Coast. Winter has begun with a vengeance in the Midcontinent – from ice storms in Texas and Oklahoma to subzero temperatures in the Far North. Production impacts are likely to be most pronounced in the oil sands of Alberta and rural areas of North Dakota. Weather is also affecting truck and rail deliveries, with the latter exacerbated by yet another crude-by-rail accident.
U.S. Product Stocks Build while Crude Draws
Total commercial inventories increased this past week with a decline in crude oil more than offset by an increase in products. Crude runs remained very high. Reported demand was down largely due to the New Year’s Holiday as well as severe winter weather impacts (less travel, power outages, people hunkered down in many areas). For the same week last year, stocks built, so the year-on-year stock deficit widened.
A Big Japanese Crude Stock Draw, but Weaker Product Demands
The most notable items were a sharp drop in crude stocks for the latest week (1/4) and the relatively weak demands to begin 2014, which strongly built finished product stocks. The overall balance in total commercial stocks, however, rose only 1.1 MMBbls from the data that had last been reported on 12/21. We expect the data to normalize in the next week or so, with demand rebounding for all the major products.
U.S. Propane – Market Leader
U.S. propane continues to provide market leadership as stocks ended the year at a historically quite low level. The warming this coming week will provide some relief to end-users, and enable more resupply downstream, but cold will likely resume thereafter, keeping propane as the leader of the NGL complex. International markets have been generally pressured lower by the arrival of cargoes from the USGC and West Africa, in addition to milder weather especially in Europe. The arb has shifted to favor USGC exports to Europe over Asia, although Latin America will certainly remain the prime outlet for US product.
U.S. Ethanol Prices Decline
Ethanol prices fell the week ending December 27 due to reduced demand for gasoline blending. In addition, inventories in PADD II were the highest since May. Shortages of rail car space supported prices on the coasts.
Ethanol Production Increases
U.S. ethanol production started the year by rising to 919 MB/D from 913 MB/D during the prior week. The manufacture of ethanol-blended gasoline tumbled for the second consecutive week after having reached a record 8,856 MB/D during the week ending December 20.
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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