NYC-based PIRA Energy Group believes that burgeoning momentum to own oil seems poised to push oil prices higher for now. On the week, U.S commercial stocks built led by crude, while Japanese crude stocks drew strongly. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Bullish Oil Prices
It is hard not to be bullish oil prices with the global economy gradually improving, tight physical oil markets and MENA turmoil, which is already substantially reducing global oil supplies and has the potential to reduce supplies further. Current positioning and likely September deflationary type headlines, due in part to a challenging calendar, but also the startup of Iranian nuclear negotiations, pose downside risks to oil prices. Yet, the burgeoning momentum to own oil seems poised to push oil prices higher for now with SPR chatter somewhat limiting the upside.
U.S. Commercial Stocks Build Led by Crude
Overall U.S. commercial oil inventories increased for the week ending August 23 according to the latest weekly DOE data with the entire build occurring in crude, while product inventories declined. Overall U.S. oil inventories are in the upper end of their historic range, in part because of high "other" products. Crude and the four major products stocks (gasoline, distillate, jet and resid) are at the average of their historic range, although crude stocks are indeed relatively high. The stock increase for the same week last year was higher, thereby narrowing the year-on-year stock excess. Nearly the entire excess is in gasoline.
Strong Crude Stock Draw in Japan, Refinery Margins Very Weak
Crude runs were little changed, but a very low crude import figure drew stocks strongly. Gasoline demand remained strong and gasoil demand rebounded from abnormally low levels. The kerosene stock build rate moderated. Refinery margins collapsed to very weak levels as all cracks gave ground. While cracking margins are weak, topping margins are even worse.
Withdrawal of Half of Libya’s Oil From the Market
Crude oil trade flows have been significantly altered in 3Q13 by the withdrawal of nearly half of Libya’s 1.4 MMB/D of oil from the market and the subsequent increase in production from Saudi Arabia to record levels to compensate for these losses and to accommodate growing global demand over the second half of the year. Tanker markets are adjusting with more West African crude staying in the Atlantic Basin, which is shifting tonnage demand to smaller vessels. More sour crude production has also benefited ship operators by lowering bunker prices, which have risen less than crude.
LPG Market Appears Tight
The slow pace of propane stock building has pushed prices higher and will keep prices supported as crop drying and winter heating demand are approaching. Gasoline blending season is starting, increasing the pull on butanes. Prompt European LPG markets are relatively tight given low arrivals in August and North Sea maintenance. More imports will be attracted from the USGC and West Africa.
Ethanol Output Drops to 21-Week Low
Ethanol output fell to a 21-week low of 820 MB/D the week ending August 30 from 844 MB/D in the preceding week, while imports dropped to 4 MB/D from 19 MB/D over the same period. Inventories decreased by 232 thousand barrels to 16.3 million barrels as PADD II stocks fell below 5.0 million barrels for the first time since the DOE began reporting weekly ethanol data in June 2010.
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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