US Economy
US West Texas Intermediate oil benchmark jumps in July
By Finfacts Team
Jul 15, 2013 - 7:49 AM

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The US West Texas Intermediate (WTI) benchmark for light, sweet crude oil, has risen by 15% since the start of July and the margin with the North Sea benchmark fell to less than $2 a barrel last week. However, this development mainly reflects changes in logistics rather than big moves in demand and supply.

The Brent crude benchmark is used to price two- thirds of the world's oil supply and is owned by Atlanta-based Intercontinental Exchange Inc., which owns ICE Futures Europe. The WTI benchmark is owned by the New York Mercantile Exchange (Nymex), which is in turn owned by CME Group Inc. of Chicago.

WTI has fallen out of favour with oil producers as the jump in US and Canadian oil production has resulted in supply problems at the Cushing, Oklahoma supply point.

In 2011 and 2012, WTI oil futures traded at an average discount to Brent futures of $16.69 a barrel. WTI was cheaper by as much s $23 last February.

While oil from Canada and the Midwest flowed into Cushing, there was a shortage of pipelines to transport it to the main refining centres on the Gulf of Mexico coast. Consequently, according to The wall Street Journal oil inventories at Cushing went to an average of about 50m barrels this year from about 31m barrels in 2009.

In recent weeks, US oil stockpiles have fallen sharply and new oil pipelines and railroads help bring a glut of oil once trapped in the Midwest to refineries on the Gulf Coast.

On Friday, August light, sweet crude on the New York Mercantile Exchange rose $1.04, or 1%, to $105.95 a barrel. Brent crude on the ICE futures exchange rose $1.08, or 1%, to $108.81 a barrel.

The US Energy Information Administration says it expects the WTI discount to begin widening again, to $8 per barrel by the end of 2013, as crude oil production in Alberta, Canada, recovers following the heavy June flooding and Midcontinent production continues to grow.

Inland US refiners are facing profit drops or imposing higher prices on petrol because of the dearer local crude.

IEA report

The International Energy Agency (IEA), the energy watchdog for 28 industrialised countries including Ireland, said last week in its July Oil Market Report (OMR) that despite a lacklustre economic outlook, futures markets were buoyed by upheaval in Egypt and supply‐side issues. Futures edged mildly higher in June but posted stronger gains in early July.

Global demand is forecast to grow by 1.2 mb/d in 2014, following upwardly‐revised growth of 930 kb/d in 2013. Unseasonably cold weather in the OECD helped to raise the estimates for 2Q13 and full year 2013 by 645 kb/d and 215 kb/d, respectively.

Non‐OPEC supply is forecast to increase by 1.3 mb/d in 2014, higher than an upwardly revised 1.2 mb/d for 2013. Global supplies fell by 0.3 mb/d to 91.2 mb/d in June m‐o‐m, as lower OPEC crude output more than offset an 80 kb/d gain in non‐OPEC supply.

Disruptions in Libya, Nigeria and Iraq cut OPEC crude oil supplies by 370 kb/d in June, to 30.61 mb/d. The ‘call on OPEC crude and stock change’ for 1H13 was raised by 350 kb/d to 29.6 mb/d, as cold weather lifted 2Q13 demand. For 2014, the ‘Call’ is forecast to decline by 200 kb/d to 29.4 mb/d.

Highlights of the latest OMR

  • Despite a lacklustre economic outlook, futures markets were buoyed by upheaval in Egypt and supply-side issues. Futures edged mildly higher in June but posted stronger gains in early July, with Brent last trading at $108.30/bbl and WTI at $105.20/bbl.

     
  • Global demand is forecast to grow by 1.2 mb/d in 2014, following upwardly-revised growth of 930 kb/d in 2013. Unseasonably cold weather in the OECD helped to raise the estimates for 2Q13 and full-year 2013 by 645 kb/d and 215 kb/d, respectively.

     
  • Non-OPEC supply is forecast to increase by 1.3 mb/d in 2014, higher than an upwardly revised 1.2 mb/d for 2013. Global supplies fell by 0.3 mb/d to 91.2 mb/d in June m-o-m, as lower OPEC crude output more than offset an 80 kb/d gain in non-OPEC supply.

     
  • Disruptions in Libya, Nigeria and Iraq cut OPEC crude oil supplies by 370 kb/d in June, to 30.61 mb/d. The ‘call on OPEC crude and stock change’ for 1H13 was raised by 350 kb/d to 29.6 mb/d, as cold weather lifted 2Q13 demand. For 2014, the ‘Call’ is forecast to decline by 200 kb/d to 29.4 mb/d.

     
  • OECD commercial total oil inventories built seasonally by a relatively weak 4.8 mb in May, to 2 683mb. Product stocks rose by 16.8 mb, leaving forward demand cover unchanged at 30.4 days. Preliminary data show that stocks built by a further 23.2 mb in June.

     
  • North American crude runs surged in May and June ahead of an exceptionally steep seasonal ramp up in global throughputs expected in 3Q13.  Global crude throughputs are expected to ramp up by a steeper-than-normal 2.3 mb/d from 2Q13 to 3Q13, in line with previous forecasts and driven by the non-OECD region.

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