Cushing stocks hit a record high in March according to NYC-based PIRA Energy Group. The crude stock surplus also hits a new high in the U.S. In Japan, crude runs ease with higher maintenance and crude and finished product stocks post slight builds. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Cushing Stocks Hit Record High in March
Cushing crude stocks rose to record levels in March, causing the NYMEX WTI contango to widen and strengthening most onshore crude differentials, as Cushing WTI prices weakened relative to regional grades. Outright prices weakened through the first half of March, but began to recover by month end, helped by improved refining margins and geopolitical risks. Stocks at Cushing are expected to peak just above 60 million bbls in April or May. But WTI will remain in contango until stocks fall toward the 30-35 million bbl level — not likely until at least mid-2016.
U.S. Stock Surplus Hits New High
With the largest weekly inventory increase of the year, the year-on-year inventory surplus swelled to 177 million bbls, or 17%. Crude stocks are almost 100 million bbls higher than last year. Gasoline and distillate inventories are a combined 33 million bbls higher.
Japanese Crude Runs Ease with Higher Maintenance; Crude and Finished Product Stocks Post Slight Builds
Crude runs eased and remain in good alignment with our turnaround schedules. Crude imports also declined, but crude stocks still posted a modest build. Gasoline and gasoil stocks drew slightly despite falling demands. Kerosene stocks built as demand seasonally ebbed. The indicative refining margin remained strong, though major product cracks softened on the week.
Aramco Differentials Announced, Asia Raised
Saudi Arabia's formula prices for May were just released. U.S. and European differential adjustments were mixed and seen as minor. European differentials were tweaked, higher on the lightest and heaviest grades, and cut marginally on Arab Light. U.S. differentials were lowered on Arab Extra Light and Light and lowered on Arab Medium and Heavy. Differentials to Asia, however, were raised more significantly and across the board. The adjustments for all regions are seen as keeping in step with refiner demand for crude and downstream profitability.
Saudi Arabia Producing 10.3 MMB/D: Bullish or Bearish?
On balance, Saudi Arabia producing 10.3 MMB/D in March 2015 is bullish. Incremental Saudi crude burn demand could push its volume this summer to levels that would substantially reduce global spare capacity, at a time when oil markets will be tighter and geopolitical risks to supply are growing. Look for Saudi Arabia to continue to increase prices to restrain demand as it has done the last two months. All of this will be supportive to higher oil prices in second-half 2015.
Asian Steam Cracker Margins at 2015 Highs
Asian steam cracker margins have been in a broad upswing since January of this year. Margins improved yet again last week and continue to make new 2015 highs. Naphtha cracks added 2¢ to 53¢/lb, but they look increasingly challenged by LPG in the coming weeks as heating demand deteriorates and prices weaken. Butane margins jumped 14% to 51¢/lb while propane cracks added 5¢ to 49¢/lb.
U.S. Ethanol Prices and Margins Increase
The week ending 3 April U.S. prices advanced to the highest levels of the year. Rising petroleum prices and robust demand for ethanol-blended gasoline were the main drivers. Margins also reached a 2015 high last week, as corn prices fell after bearish USDA reports.