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PIRA Energy Market Recap for the week of 12 October 2015

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Hydrocarbon Engineering,

NYC-based PIRA Energy Group has reported that problems at Canadian oil sands facilities curtailed production and lifted northern differentials last month, while outright crude prices registered a very mild recovery. In the US, total commercial stocks built less than last week, albeit to a new record level. In Japan, crude stocks posted a large rise, but finished products drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

North American Midcontinent oil forecast

Problems at Canadian oil sands facilities curtailed production and lifted northern differentials last month, while outright crude prices registered a very mild recovery. Crude stocks declined from Alberta to Oklahoma, but rose along the Gulf Coast, lifting Cushing WTI values relative to foreign and coastal grades.

Colder weather and poor wind generation underpin short-term prices

While French nuclear unavailability has returned well above year ago levels, colder weather will add about 5 GWs of demand on average in France in the upcoming week, firming day ahead prices. The upcoming week will provide some indications of the potential swings in French exports under a colder weather scenario, especially in light of the recent increase in the NTC with Spain and introduction of the FB Market Coupling with CWE.

US NGLs rally with crude

The US NGL complex rose with broader energy markets last week. Crude oil’s 9% rally helped Mt Belvieu propane prices to increase by 4.2% to US$0.49/gal for November delivery – this despite a 1.6 million bbls increase in stocks to a record 95.9 million bbls. Butane at the market center improved by nearly the same amount, while purity ethane prices jumped to near the strongest levels of the year, just below US$0.20/million btu.

California emissions trading system market outlook

The surrender for Compliance Period 1 (2013-14) will take place in less than a month, on Nov. 2nd. Offset usage will ultimately determine the size of the bank carryover. While the CP1 offset limit is about 26 MT, sources do not appear well-positioned to maximiSe offsets use. CARB is engaging stakeholders in developing post-2020 regulations to implement the 2030 target (Scoping Plan), to amend the cap and trade and to comply with the Clean Power Plan. While CARB is looking to streamline the offsets process, at the same time it has moved to invalidate additional offsets. In moving forward with its own ambitious, economy-wide and international climate agenda, CA does not appear to make interstate carbon trading under the CPP a priority. Allowance prices held steady in Sept., although moved up at the end of the month. PIRA continues to expect a rise in allowance prices through the end of the year, with floor price expectations for 2017 starting to play a larger role.

US ethanol prices increase

Prices rose the week ending 2 October. Higher corn and oil assessments provided support, but manufacturing margins decreased partly due to lower co-product DDG values.

US commercial stock build slows

Total commercial stocks built less than last week, albeit to a new record level. They also built less than last year, so the surplus narrowed. Driven primarily by weakness in other demand, the latest four-week average of total petroleum demand was negative for the first time since earlier in the year. The decline in crude runs due to refinery maintenance dominates the crude balance, and we expect fall maintenance to peak the week of 9 October. The latest monthly average of weekly domestic crude supply continues to decline.

US Gulf/Mideast gulf competition to emerge this winter

The competition between Qatar and the US for market share in N.W. Europe is about to heat up with first volumes from Sabine Pass coming this winter. Both suppliers have contract obligations to varying degrees for N.W. Europe specifically, where the spot market is going into the winter with relatively low stocks and is counting on LNG, to a larger extent, to balance seasonal increases.

Key indicators show strength

The S&P 500 posted strong gains for the week, the best weekly performance since mid-December 2014. All the related indicators also improved (Russell 2000, volatility, high yield credit and emerging market credit). Overall, commodities improved, both energy and ex-energy. With regard to currencies, many of the currency groups that had been performing poorly posted noted strength. Emerging Asia, along with commodity producers such as Russia, Brazil, Canada and Australia all posted gains. Indian, South African and Turkish currencies also displayed strength.

Japanese crude stocks post a large rise, but finished products draw

For the week, crude runs eased slightly with higher imports such that crude stocks posted a large rise to begin October. Finished product stocks drew on lower gasoline, gasoil, and naphtha inventories. Gasoline demand eased, but so did yield and stocks drew slightly. Gasoil demand rebounded from holiday impacts, while yield rose, but exports ebbed and stocks posted a moderate draw. Kerosene demand rebounded with lower yield and the stock build rate moderated. Indicative refining margins remain good.

Global equities post another strong rebound

Global equity markets posted a solid rebound this week, the second in a row. In the US market, energy, materials, and industrials all outperformed by a large margin. They utility index was the laggard, but still posted a gain. Internationally, all the tracking indices again advanced with Latin America and emerging markets doing the best.

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