PIRA Energy Group's Weekly Oil Recap

NYC-based PIRA Energy Group reports that there is potential for Iceland volcano eruption to disrupt North Atlantic air traffic and jet fuel demand. In the U.S., crude stocks draw larger than the product stock build. In Japan, low demand builds product stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Potential for Iceland Volcano Eruption to Disrupt North Atlantic Air Traffic and Jet Fuel Demand
Iceland’s Met Office warned that the country’s largest volcano might erupt, potentially posing a threat to air traffic in the North Atlantic. This is reminiscent of 2010’s eruption of Iceland’s Eyjafjallajökull volcano, which disrupted air traffic in the North Atlantic and Europe for about a week cutting oil demand.

U.S. Crude Stocks Draw Larger than Product Stock Build
The August 15 commercial stock draw was less than last year’s draw, widening the year-over-year stock excess. The crude draw exceeded last year’s, narrowing the crude excess versus last year. The four major refined product stocks built a collective 1.4 million barrels, and with a draw last year, their collective deficit narrowed. All other product stocks built less than last year so their excess narrowed. We remain in the pattern of the major refined products being in deficit, all other products being excess, and the crude stock position osculating from looser to tighter, especially when considering stocks required for crude infrastructure expansion.

Low Demand in Japan Builds Product Stocks
Two weeks of data were reported this past week due to the annual mid-August hiatus. Crude stocks rose over the last two weeks, but more troubling was a large build in finished stocks, much of it gasoil, but to a lesser extent kerosene (seasonal), and fuel oil. Demand in the latest week was extraordinarily low.

Asian LPG Prices Stronger
Recent strength in local South China prices helped lift LPG more than 2% in Asia this week. Propane cargoes for October delivery were called $18.50 higher at $836.50 while butane rose by the same amount to $876.50/MT. The October Propane FEI settled $6 higher than the cash market. Lower imports into China, in part due to a change in tax invoicing, has led to inventory draws – prompting a $32/MT rally in local prices last week. Strong discounts to naphtha and improved seasonal demand should support prices next week while recent price strength leaves room for a correction.

U.S. Ethanol Output and Stocks Rise
U.S. ethanol production reached 937 MB/D the week ending August 15, up from 931 MB/D during the previous week as more plants are operating near capacity. Stocks built 491 thousand barrels to 18.3 million barrels.

U.S. Ethanol Prices and Margins Increased
Ethanol prices soared the week ending August 15 as the market tightened. Demand in the domestic and export markets were strong, while production remained significantly below the June peak.

Global Political Risk-Political Risk Scorecard
Growing Libyan exports, continued U.S. intervention in Iraq, and reduced tensions in Ukraine will weigh on prices next week.

Source: PIRA's latest weekly 'Energy Market Recap'
http://www.pira.com/