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PIRA Energy oil market recap: Week ending 18 January 2015

Hydrocarbon Engineering,



Though slowed by the desire to avoid contentious issues ahead of the November elections, federal activity to regulate fracking has picked up in December and so far in 2015. The Obama Administration announced the next steps to implement its Methane Strategy, seeking to reduce methane emissions in the oil and gas sector by 40 – 45% from 2012 levels by 2025. On the state level, induced seismicity continues to be an emerging issue. Ballot measures in the November election seeking to ban fracking had mixed results across Ohio and California, but notably passed in Denton, Texas.


Total commercial stocks built last week to the highest weekly total ever reported. With a sharp decline in crude runs, crude stocks built, the four major refined products built, and all other oils drew. With a total commercial stock draw this week last year of 10.3 million bbls (-7.7 crude, +5.0 four major refined products, -7.6 all other oils), the year over year commercial stock excess ballooned out 20.5 million bbls to 112.6 million bbls, or 10.8%.


Inexpensive propane prices relative to ethane continue to make C3 the most economical petrochemical cracker feedstock in the US. AT US$0.43/lb ethylene produced, C3 remains just over 10 cents/lb better than ethane, per PIRA calculations. Butane’s cracking margin, which was nearly equivalent with propane over the last few weeks, fell. Strong ethane prices relative to LPG, should they persist, complicate plans for the construction of at least six world scale whtane crackers on the USGC by 2020.


US ethanol prices stumbled to a six year low the week ending 9 January, following petroleum values rather than corn costs. The weakest demand in about a year and the highest inventories in about 22 months also put downward pressure on prices.

US ethanol inventories built by nearly 1.4 million bbls the week ending 9 January, reaching 20.2 million bbls for the first time since February 2013. This was the largest week on week gain ever reported.


Crude runs eased fractionally on the week and crude imports remained sufficiently high to build stocks. Finished product stocks drew, largely on lower naphtha and jet-kero stocks. Gasoline demand was modestly lower and stocks built slightly. There was a minor draw on gasoil stocks, as demand rebounded from low levels and incremental exports rose. Kerosene demand was higher and stocks resumed drawing. Indicative refining margins remain relatively strong.

The world

Headline inflation rates have come down sharply in developed economies because of lower oil prices. Emerging world inflation has also broadly decelerated. The global low inflation environment has created room for policy easing in key economies, most notably the euro area. But the expected announcement of quantitative easing by the European Central Bank next week has also created unanticipated volatility in the foreign exchange market this week.

Fuel subsidies

Since PIRA’s August 2014 update on fuel prices and subsidies, oil prices have collapsed, from an August average of US$102/bbl to below US$50/bbl. Several governments have taken advantage of the weak price environment and removed subsidies for major petroleum products, including Indonesia, Malaysia, and India. In most cases, the move away from a fixed (and previously subsidized) price coincided with a retail price cut, reducing the risk of political backlash. However, these policy changes will affect just 5% of global gasoline backlash. However, these policy changes will affect just 5% of global gasoline and diesel demand in 2015. Most oil importers now price major petroleum products at or near market levels, while the majority of subsidies remain in large oil exporting countries, where price hikes do not appear imminent for political reasons.

Adapted from a press release by Emma McAleavey.

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