PIRA Energy Group analysis of oil market fundamentals for the week ending 21 September revealed the following:
Jet fuel demand spiked in June, July and early August. Because the economy’s fundamentals do not support such a high level of domestic demand, PIRA suspect that higher than currently assumed exports will result in a revision downward of the final demand numbers. There is already data from the Bureau of the Census that suggests that July exports will be revised up by 100 million bpd, which will put July demand back to levels more consistent with the underlying fundamentals.
Meanwhile, the year on year stock excess widened this week to the highest this year. The inventory increase was mostly in crude oil as weekly imports jumped to the second highest level of 2014. The recent relative weakness in dated Brent to US crude prices is encouraging more imports to the US. The product inventory increase was the smallest in several weeks as reported product demand increased compared to the week before and product imports remained quite low, eliminating most of the huge excess in products the week earlier. The entire excess in inventory over last year is outside of crude oil and the four major products, being mostly in NGLs, where production is soaring.
Freight market outlook
A glut of crude oil in the Atlantic Basin has driven the flat price of dated Brent crude below US$ 100/bbl to its lowest level in over two years and shifted the market structure into contango, encouraging storage. These developments have conjured up memories of the large buildup of crude in floating storage 2008 – 2009, when the unfolding financial crisis plunged the global economy into the great recession. At the peak in 2009, over 100 million bbls of crude were placed into floating offshore storage on VLCCs and Suezmax tonnage. Vessel operators are also benefitting from the lowest bunker prices since June 2012 as these have plunged along with the flat price of crude oil.
Crude runs fell and crude imports declines which drew crude stocks. Finished product stocks continued to rise. Demand impacts from the Respect for the Aged holiday, directionally came in as expected, with gasoline demand higher and gasoil demand lower, but impacts were muted. Gasoline and gasoil stocks rose modestly, while the kerosene stock build rate came in slightly above seasonal norms. Refining margins improved slightly, but remain soft. Gasoline and fuel oil cracks improved, while middle distillate cracks were little changed.
Propane contango in Asia widened US$ 14/mt with the FEI curve catching up to consistently steeper Saudi CP structure. Reports of recently lowered Saudi crude production would lead to a corresponding drop in LPG exports. Spot large cargoes jumped 3%, being called at US$ 857/mt for late October and first half November arrival. Butane followed, up US$ 15/t to US$ 886. Naphtha held steady. Steepening Saudi CP structure and stronger seasonal Asian demand should support prices next week while increasingly inexpensive naphtha should limit upside in the region. European prices will trend with Asian and American markets.
Biofuels programs continue to proceed actively in many countries. Canada will need approximately 2.2 billion ltrs (580 million gal.) of ethanol this year to satisfy its 5% ethanol mandate.
Adapted from a press release by Emma McAleavey.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/25092014/pira-update-1305/