PIRA's Latest Weekly Oil Market Recap

NYC-based PIRA Energy Group reports that accounting for the strength of U.S. jet fuel demand this summer. In the U.S., stock excess accelerates. In Japan, stocks draw, but finished product stocks continue to rise. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Accounting for the Strength of U.S. Jet Fuel Demand this Summer
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, we 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 MB/D, which will put July demand back to levels more consistent with the underlying fundamentals.

U.S. Stock Excess Accelerates
The year-on-year stock excess widened this past week to the highest this year. The inventory increase was mostly in crude oil as weekly imports jumped to the second highest level this year. The recent relative weakness in dated Brent to U.S. crude prices is encouraging more imports to the United States. 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.

Japanese Crude Stocks Draw, but Finished Product Stocks Continue to Rise
Crude runs fell back and crude imports declined 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 the 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.

Freight Market Outlook
A glut of crude oil in the Atlantic Basin has driven the flat price of dated Brent crude below $100 per barrel 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 in 2008-2009, when the unfolding financial crisis plunged the global economy into the great recession. At the peak in 2009, over 100 million barrels 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.

Inexpensive Naphtha to Check Further Asian LPG Price Gains
Propane contango in Asia widened $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 $857/MT for late October and 1st half November arrival. Butane followed, up $15/MT to $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.

Biofuel Demand is Slowing Down in the U.S., Europe and Brazil; Growing Elsewhere
Biofuels programs continue to proceed actively in many countries. Canada will need about 2.2 billon liters (580 million gallons) of ethanol this year to satisfy its 5% ethanol mandate.

Source: PIRA Energy Group's weekly 'Energy Market Recap'