PIRA Energy Group has said that while the global economic backdrop continued to improve, oil market fundamentals are weakening. On the week, US oil stocks built as product demand weakened, and Japanese crude stocks built as well.
While global economic backdrop improves, oil market fundamentals weaken
The global economy continues to improve, providing a positive backdrop for oil prices and other risk assets. However, the 2013 oil market itself is in general, not bullish. Non-OPEC supply will significantly outpace demand in 2013, causing core OPEC countries to cut production to balance markets.
Asian economic data appears to be strengthening
Asian economic data had been looking distinctively weaker, but a turnaround appears to be underway. Global crude stock draws generally accelerate in December, but this is followed by a large inventory build in crude and products in January. Strong light product draws will begin in February and March as turnarounds gear up and product demand rises.
Growing North American crude production weakening Atlantic basin fundamentals
North American production is growing swiftly, which will negatively affect Atlantic Basin supply demand balances, especially during 1H13 refinery maintenance. US imports of light sweet and medium sweet crudes will continue to decline rapidly. The WTI Brent spread is expected to narrow sharply in to mid 2013.
Latin American heavy crude price differentials to remain firm
In 2013, heavy crude price differentials will remain firm for Latin American grades. Global coking capacity will increase faster than heavy crude production, keeping vacuum resid balances tight and fuel oil cracks relatively strong. Coking refinery margins will only be at a narrow premium to cracking margins and some coking capacity will not be fully utilised.
US oil stocks build week on week as product demand weakens
US commercial oil inventories increased the week ending December 21st, as weaker product demand led to a product stock increase that more than offset a crude stock decline.
Japanese crude stocks build week on week
Japanese crude stocks rebounded the week ending December 22nd, following the sharp draw seen the prior week.
Canadian rail options as adjunct to export pipelines
Canadian oil pipeline infrastructure is becoming woefully inadequate relative to the current and growing level of anticipated future production. Expanded pipeline capacity to both the US and the West Coast has been slowed by political opposition, placing in jeopardy new production from the oilsands. However, the growing attention to rail alternatives reflects the powerful economic incentives to find a way to move this crude to higher value markets.
2013 US refinery turnarounds are entering a relatively active period
After a high level of refinery downtime in 4Q12, planned downtime during the 1H13 is anticipated to be well above average. Given the difficulties of bringing units back into service and the potential for unplanned outages, it is likely that actual downtime will be even higher.
Oil tanker markets end year on a positive note
Tanker markets ended 2012 on a positive note, with spot rates in most trades safely above cash operating costs. Clean tanker rates, especially for the larger product groups, have been especially firm, hitting multi year highs on strong naphtha demand from Asia. While excess capacity remains a problem, fleet growth slowed significantly in 2012 due to rationalisation measures, including a slowdown in tanker orders and early scrapping of surplus tonnage.
Higher LPG stocks limit upside price potential
The US weather maps point a cold front moving in, which should be bullish for year on year comparisons for propane. However, high stocks limit the upside price potential. In Asia, demand is weak despite relatively cold weather. In Europe, weather related demand has to materialise to stave off further price pressures.
US ethanol prices fall in December
US ethanol prices tumbled in December, primarily due to plunging corn costs. Demand was weak with ethanol selling at a premium to gasoline components in many parts of the country mid month, causing the penetration of ethanol blended gasoline to drop to the lowest level since January. Production rebounded from summer lows and inventories build to a 26 week high during the week ending December 14th.
US ethanol output down slightly week on weekIn the week ending December 14th, US ethanol output was 822 mbpd, downs lightly from 824 the prior week. Production was higher than it was in July and early August, but much lower than the 943 mbpd output at this time last year. Imports of Brazilian sugarcane based ethanol rebounded to 37 mbpd (10.9 million gallons) during the prior week.
Adapted from press release by Claira Lloyd.
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