NYC-based PIRA Energy Group reports that Cushing crude stocks continue to fall. On the week, product inventories push U.S. stocks higher. In Japan, refiners begin coming out of turnarounds. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Cushing Crude Stocks Continue to Fall, Supporting WTI
Crude differentials in Midcontinent markets were mixed in May, with improvement in the most heavily discounted grades, like Canadian heavy and those in Midland, but declines in most other light grades. Cushing crudes remained relatively strong, with plenty of outgoing pipeline capacity now in place. Cushing stocks in May reached an all-time low in percentage terms and a five-year low in absolute terms. As Gulf Coast stocks drop this summer, causing the Cushing-Houston arb to reopen, severe WTI backwardation is a strong possibility. In other regions, rail and pipeline projects expected in the second half of this year portend increased takeaway capacity and stronger differentials in coming months.
Product Inventories Push U.S. Stocks Higher
Weaker reported product demand and a product import high for the year caused product stocks to increase, also a weekly high for 2014. Crude inventories fell for the week, leaving the overall stock build at 8.8 million barrels, which is in sharp contrast to last year’s 1.2 million barrel inventory decline during the same week. Thus, the year-on-year stock deficit narrowed by 10 million barrels to 13.6 million barrels, or just 1.2%.
Japanese Refiners Begin Coming Out of Turnarounds
Crude runs rose 29 MB/D as it appears turnarounds have begun to wind down. Imports rose from relatively low levels and crude stocks built 4.9 MMBbls. Finished products built slightly though gasoil and jet kero stocks posted draws. Refining margins were slightly lower with falling middle distillate cracks more than offsetting higher gasoline, naphtha, and fuel oil cracks.
India Quarterly Oil Demand Monitor
Market jitters that shook India in mid-2013 have faded. Economic data on growth continue to be disappointing, but optimism is running high after a decisive outcome in last month’s national election. Oil demand was held down in recent quarters by the sluggish performance of the economy and a continuous rise in retail diesel prices. But recent data on diesel under-recoveries showed that price hikes should be over soon. PIRA projects a moderate acceleration in oil demand growth going forward.
LPG Scorecard
Surging LPG inventories complicated by an upcoming export facility turnaround will pose challenges for domestic prices. A lack of incremental European demand and tight competition with naphtha in Asia will act as headwinds for LPG.
Ethanol Inventories and Production Soar
U.S. ethanol inventories soared to a 14-month high the week ending May 30 as plant output increased for the fourth consecutive week and ethanol-blended gasoline production dropped sharply. As a result, June ethanol futures prices plummeted.
Biofuels Programs Continue to Proceed Actively in Many Countries
Enerkem recently started its 10 million gallon per year waste-to-biofuels plant in Edmonton, Alberta. Universal Robina started up its 30 million liter per year ethanol plant in Manjuyod in the Negros Oriental province of the Philippines in May.
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.
