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PIRA Energy Group oil market analysis: Week ending 21st July

Hydrocarbon Engineering,

This week’s PIRA Energy Group analysis of oil market fundamentals has revealed the following:


  • US crude inventories fell for the week ending 12th July, marking a third week of huge stock decline. However, it should be noted that shorter supply lines with more domestic production are reducing the need to hold as much inventory as previously required. This should be taken into account when making comparisons with history. Product inventories built over the last week, offsetting most of the crude inventory decline.
  • Federal action on fracking has slowed and the EPA’s comprehensive study of fracking’s impact on groundwater is seeing additional delays. Illinois’s legislature approved very stringent requirements that could serve as a model for other states while Texas regulators put forth well construction and cement casing rules supported by both industry and environmentalists. The regulatory trend indicates continuing focus on research and caution, with no major impacts on production.
  • US data suggested that growth was subdued and inflation was muted during the second quarter. Despite this, the Fed still expects a constructive pace of GDP growth and some acceleration in inflation in 2013.  This view is broadly in line with PIRA’s outlook.
  • US propane inventory buildup has slowed. The latest report for the first full week of the month indicated a total gain at a fraction of the average weekly build for the previous five weeks. Overall inventory is in approximately the mid range of the last several years. US exports will continue to set records.
  • US ethanol prices rose in the week ending 12th July, supported by record production of gasoline, higher corn costs and surging petroleum values. Ethanol RIN prices jumped to new records as the E10 blendwall is being reached and there is concern that the government is not acting quickly enough to reduce RFS mandates.
  • US ethanol manufacture declined last week, however it is still at the fifth highest output of the year. PIRA expects production to fall further as many plants in Indiana and Illinois, which have suffered through two consecutive bad crop years, are running out of corn.


  • Enerkem, in Canada, expects to complete its waste to ethanol plant in Edmonton this summer, and Woodland Biofuels plans to start making ethanol from wood waste at its demonstration plant in Sarnia by the end of the year. Gasohol production reached a record high in Thailand this May, following the discontinuation of 91 octane ethanol free gasoline earlier in the year.
  • Canadian synthetic crude production showed significant growth in the first quarter of 2013, compared to 2012 figures. However, planned and unplanned outages disrupted output in the second quarter, and will continue to do so into quarter three. Outages are expected to be the main driver of an annual decline in Canadian synthetic crude production.
Middle East
  • Concerns that the unrest in Egypt could disrupt traffic through the Suex canal or the Sumed pipeline has led to a flurry of spot coverage. However, this may have been overdone and rates have retreated again on the realisation that the odds of such disruption are low. Oil demand seasonality and an unusually large increase in world refinery throughput over the second half of 2013 should lead to higher tanker demand.


  • Asian gasoline and naphtha cracks have rallied as the impact of rising US RIN pricing has rippled across the globe. Naphtha cracks will continue receiving support from the new Asian ethylene cracker startups in the third quarter of 2013. Gasoil cracks in Asia have also generally remained firm and movements west have fallen. The fuel oil crack has fallen as light product cracks have strengthened.
  • Japanese crude runs eased moderately over the week and crude imports jumped such that crude stocks built back over the 100 million bbl level. Gasoline and gasoil demand eased modestly, but levels remain good. Stocks posted small declines. Kerosene demand remained seasonally low and kerosene stocks continued to build at a moderate rate. Refinery margins continued higher and remained strong.

Adapted from press release by Emma McAleavey.

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