NYC-based PIRA Energy Group believes that a weakening economic growth outlook is undermining 2H12 oil balances. In the U.S., the refinery maintenance season is winding down, while turnarounds in Japan are increasing. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
*European Financial Crisis is undermining the economic growth outlook:
The crisis is causing 2H12 oil balances to look weaker than forecast last month. A peek at 2013 global oil balances shows increased OPEC spare capacity, assuming Iranian supplies return to market.
*Atlantic Basin Product Cracks and Refining Margins Outlook Firmer Year over Year:
The outlook for Atlantic Basin product cracks and refining margins is still stronger than last year, as regional refinery closures have tightened product balances. However, refinery restarts, new capacity additions globally, and concerns over demand will soften the outlook for some products.
*U.S. Refiners Gearing Up for Busier Season:
Crude runs have significantly increased since early April and are set to increase further in the weeks ahead, as refinery maintenance continues its seasonal decline while demand seasonally rises. For the week ending May 25, overall commercial stocks built as the inventory decline in the four major products was not enough to offset the inventory build in crude and other products.
*Japanese Turnarounds Continue Increasing:
For the week ending May 26, Japanese crude runs posted a sharp decline as turnarounds continued to ramp up. Crude runs hit the lowest level since last year at this time. Crude stocks ballooned as the implied import rate was high.
*Propane Stocks to Build:
In the U.S., the impact of higher feedstock requirements in June will be mitigated by higher output from fractionators returning from maintenance. Large builds in propane stocks are expected to continue in June, In Europe, the prospect of a Norwegian strike and spec issues for a major buyer provided short-term support in the front of the market.
*Ethanol Prices Plunge in May:
In May, U.S. ethanol prices plunged to the lowest level since September 2010, due to sharply lower corn and oil prices, increased ethanol production, and high inventories. Cash manufacturing margins were mostly poor. Margins were helped by strong DDG co-product prices, which were near record highs. Ethanol consumption reached an all-time record as the peak driving season is approaching and ethanol-blended gasoline penetration was about 95%. However, consumption growth is limited by the E10 blend wall.
*U.S. Ethanol-Blended Gasoline Output Hits Record High:
In the week ending May 25, the output of ethanol-blended gasoline rose to a record 8.586 MMB/D from 8.431 MMB/D the prior week as gasoline production increased and ethanol blends made up a higher percentage of the total pool. Ethanol production fell to 902 MB/D from a 13-week high of 919 MB/D during the prior week. Stocks built by 110 thousand barrels to 21.5 million barrels, due in part to 77 thousand barrels of imports received in PADD I.
The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
Click here For Additional Information on PIRA's global energy commodity market research services.
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