Oil Inventories Higher, Crude Demand Lower: PIRA

NYC-based PIRA Energy Group reports that oil inventories are higher and crude demand is lower. In the U.S., stock surplus to last year is roughly flat. In Japan, crude stocks draw amid peak run rates. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast
Oil inventories are higher, crude demand is lower and PIRA is beginning to question the expected 2H 2014 and 2015 lift off in economic activity. Also, add in unrelenting upward revisions to U.S. oil supply growth with non-OPEC supply additions continuing to substantially outpace demand growth and you have a combination of factors pointing to lower prices.

Stock Surplus to Last Year Roughly Flat
This past week’s inventory increase kept the year-on-year overall stock surplus to around 4 million barrels. The crude inventory decline took crude stocks slightly below last year, and at current high run rates crude stocks are still relatively tight, which was reflected in September relative prices. The product stock change reflected lower product imports (to a new low for the year) being offset by weaker reported demand and higher product output.

Japanese Crude Stocks Draw Amid Peak Run Rates, Finished Product Stocks Continue Building
Runs rose fractionally on the week and lower crude imports led to a crude stock draw. Finished products, however, have continued rising amid peak runs. Gasoline demand was higher but is still seen as underperforming seasonal expectations. Gasoil demand rebounded from very low levels. Kerosene stocks continued to build along seasonal norms. All the product cracks improved on the week and our indicative margin indicator rose, but remains rather weak.

Impact of Russian Gas Flow Interruption on Oil Demand
In the low probability event of a complete Russian gas flow stoppage to Europe, oil demand could potentially increase 600 MB/D. In the more likely scenario, still just 30% probability, of a stoppage of flows through Ukraine to Europe, the impact on oil demand would not be material.

U.S. Refinery Turnarounds, September 2014 – December 2015
There was a relatively high level of crude unit downtime during August and the level of both planned turnarounds and other outages carrying over from the current month is expected to increase over the next couple of months.

Freight Market Outlook
A glut of crude oil in the Atlantic Basin has caused the flat price of crude to fall and regional grade differentials with Asia to narrow substantially. The Brent-Dubai spread has narrowed to its lowest value in four years, prompting a significant increase in the number of West African cargoes headed to Asia in August. In addition, the Dubai price structure is now in contango, with forward prices higher than those for the prompt month, making it easier to hedge cargoes on the long voyages from the Atlantic. This is a good omen for VLCC operators as more vessels are tied up on long voyages around the horn of Africa from the Atlantic to Asia. The flip side, of course, is that Mideast liftings to Asia in the fourth quarter will have to decline to make room for the added Atlantic Basin supplies.

Asian LPG Prices to Benefit from Lower Saudi CPs
LPG prices in Asia held steady this week, prior to this weekend’s imminent release of Saudi contract prices for Sept tons. CP futures prices indicate that the propane CP could fall while Asian destination markets show that the butane CP could remain flat or perhaps drop by $10/MT.

Ethanol Demand Soars
U.S. ethanol-blended gasoline manufacture soared to 8,904 MB/D the week ended August 22, up from 8,667 MB/D during the prior week and very close to the record 8,980 MB/D set in May. Ethanol output dropped to 913 MB/D, the second lowest rate of production since April.

U.S. Ethanol Prices Rise in August
Ethanol prices rose in August, after falling during the prior three months. The market tightened as stocks drew by the largest amount since March 2013.

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