PIRA Energy Group analysis of oil market fundamentals for the week ending 8 June 2014 has revealed the following:
- Crude differentials in Midcontinent markets were mixed in May with improvement in the most heavily discounted grades, but declines in most other light grades. Cushing crude remained relatively strong, with plenty of outgoing pipeline 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.
- Rail and pipeline projects expected in the second half of this year portend increased takeaway capacity and stronger differentials in coming months.
- 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 bbls, which is in sharp contrast to last year’s 1.2 million bbls inventory decline during the same week.
- The year on year stock deficit narrowed by 10 million bbls to 13.6 million bbls, 1.2%.
- US ethanol inventories rose to a 14 month high in the week ending 30 May as plant output increased for the fourth consecutive week and ethanol blended gasoline production dropped sharply. As a result, June ethanol futures prices plummeted.
- Rapidly growing 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.
- Enerkem recently started its 10 million gal./y waste to biofuels plant in Edmonton, Alberta.
- Universal Robina started up its 30 million ltr/y ethanol plant in Manjuyod in the Negros Oriental province of the Phillipines in May.
- Crude runs rose 29 000 bpd as turnarounds begun to wind down.
- Imports rose from relatively low levels and crude stocks built 4.9 million bbls.
- Finished product 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.
- Economic data on growth continues to be disappointing, but optimism is running high following a decisive outcome in last month’s national election.
- Oil demand was held down in recent quarters by a sluggish economy and a continuous rise in retail diesel prices. However, recent data on diesel under-recoveries showed that price hikes should be over soon.
- PIRA predicts a moderate acceleration in demand growth going forward.
Adapted from a press release by Emma McAleavey.
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