NYC-based PIRA Energy Group reports that China reached a milestone in December 2012, as Chinese net petroleum imports were greater than U.S. net petroleum imports for the first time. On the week, weak reported oil demand in the U.S. reduced the commercial stock draw. In Japan, crude runs began to ease, which built crude stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
*China Reaches a Milestone: Petroleum Net Imports Exceed U.S. In December 2012
Every year for at least the last two decades, Chinese oil demand has increased in both absolute and relative terms, that is, as a percent of world total demand. Since the price spike of 2008 and the following recession, U.S. oil demand has been declining in both absolute and relative terms, for all years except 2010. This, coupled with growing U.S. oil production, has led to a downward trend in U.S. net oil imports, while Chinese net oil imports continue to grow inexorably. December 2012 was the first time Chinese net imports exceeded U.S. net imports, and this trend will continue to grow for years to come.
*Weak Reported Demand Reduces U.S. Stock Draw
Overall U.S. commercial oil inventories fell the week ending March 15. Most of the draw was in crude oil, largely due to an Alaskan in-transit inventory decline, which offset a crude stock build in PADDs I-III. Reported product demand fell on the week, while weather adjusted demand and actual exports were down. Despite the small overall inventory decline, the year-on-year stock excess narrowed.
*Japanese Crude Runs Begin To Ease, Crude Stocks Build
Japanese crude runs appear to have begun their seasonal decline for turnarounds and crude stocks built for the week ending March 16. Major product yields remain unusually low. Gasoline and gasoil balances showed only modest changes on the week, while kerosene stocks continued drawing.
*International Tanker Markets Remain Weak
International tanker markets remain weak, although a drop in bunker prices over the past month has helped improve vessel earnings somewhat. VLCC rates recovered modestly from early February after falling to the lowest level in more than two years as tonnage demand suffered when Saudi Arabia and the other Middle East Gulf producers cut exports in January. The product tanker sector in the Atlantic Basin, which had been the sweet spot among the tanker groups ever since Hurricane Sandy struck in November of last year, fell sharply.
*Ethanol Prices Advance Again
Ethanol prices advanced again the week ending March 15, as the market tightened due to a large inventory draw, and higher corn costs were passed on. Elevated RIN costs also supported prices. Ethanol cash margins rose to the highest values since December 2011, which will cause some idle plants to restart, if sufficient corn can be secured at an economic price. This year, the new sugarcane harvest in Brazil’s South-Central region began earlier than the usual April 1 starting date to maximize cane processing inventories.
Source: PIRA Energy Group