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PIRA Energy oil market recap: Week ending 7 December 2014

Hydrocarbon Engineering,

PIRA Energy Group analysis of oil market fundamentals for the week ending 7 December has revealed the following:


Crude prices continued their downwards spiral in November, with West Texas Intermediate (WTI) dropping below US$ 70/bbl. Regional grades in the Rockies and West Texas strengthened vs WTI, on new pipeline takeaway capacity. Canadian crude differentials weakened slightly. Cushing crude stocks rose 3 million bbls in November, ending the month at 34 million bbls.

Crude runs soared to the highest level since peak summer runs. This ended nine weeks of product stock declines during the fall maintenance season, and product inventories increased. Not surprisingly, crude stocks flipped to a draw from mostly builds. The resulting overall stock decline was 6 million bbls less than last year’s inventory decline for the same week, widening the year on year inventory excess.


According to PIRA, it is becoming increasingly clear that LPG supply is outpacing demand globally. While crude prices have stabilised for the moment, LPG has had no such luck, with prices remaining in freefall mode. US prices were crushed across the board, with the Saudi CP cut a major catalyst; Mont Belvieu propane fell 15% to 58 cents/gal. and butane lost 17% to 81 cents. But the ethane price deterioration was even worse. C2 prices fell a massive 23% as the feedstock struggles to compete with cheap propane in the US steam cracker pool.


US ethanol assessments were mixed during the holiday shortened week ending 28 November; prices in Chicago and the Gulf Coast continued to climb as the market was tight, while New York and Southern California ethanol tumbled from lofty levels. Manufacturing margins were the highest since March as inventories remained low.

US ethanol manufacture declined to 962 000 bpd during the holiday shortened week ending 28 November, down from a record 982 000 bpd in the preceding week. After falling for two consecutive weeks despite record output, stocks built by 217 000 bbls to 17.3 million bbls.

PADD crude balances

Parts of each regional crude balance have followed quite a different path than the national aggregation. Changes to internal logistics and flows are a key part of the story, with rail both contributing to, and benefitting from, the growth in shale crude production. A prolonged period of low prices, especially low wellhead values in the Bakken and Canada, could dramatically reduce the need for infrastructure growth, and slack infrastructure utilisation would be reflected in additional narrowing of regional price differences.


Crude runs rose out of turnarounds. Alignment with our planned turnaround schedules still looks good. Crude imports were lower and crude stocks drew 2.1 million bbls. Finished product stocks drew due to draws on fuel oil and naphtha. Gasoline demand was slightly higher, the yield increased and stocks built. Gasoil demand was lower, and stocks drew. Kerosene demand fell and stocks built.

Global freight market

OPEC’s decision to leave their production target unchanged at current levels signals the start of a new era for the oil markets. While the oil sector is now in crisis mode, the tanker sector is experiencing a seasonal rebound. Bunker prices have declined by more than US$ 185/t since July while tanker rates have generally firmed in most trades, leading to sharply higher vessel earnings. The new normal seems to be characterised by more frequent tanker rate spikes and higher volatility in the Atlantic Basin as trading patterns have yet to fully adjust to the growing volumes of crude and products that must move from the Atlantic to Asia. Longer term, higher OPEC output, lower growth in non-OPEC supplies and inexpensive bunker fuel are highly beneficial to the tanker sector.

Adapted from a press release by Emma McAleavey.

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