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Fuel Oil News - March 2017

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12 MARCH 2017 | FUEL OIL NEWS | www.fueloilnews.com FUELS EIA NE WS Propane's use as a heating fuel is mainly responsible for the seasonal pattern in its consumption, which peaks in the winter. Normal butane is predominantly used by refiners and blend- ers as a gasoline blendstock. Refinery and blender net inputs of butane are highly seasonal because they are a function of gasoline production and gasoline Reid vapor pressure (RVP) specifications. Like propane, butane consumption peaks in the winter. Normal butane is the second largest category of HGL moved by rail. Isobutane, as well as propylene and butylene, is used in refineries to produce alkylate, which boosts octane levels in gasoline but has a low RVP. Because of its lower RVP, isobutane use in gasoline blending is less seasonal than normal butane. Propylene is produced at either refineries or at petro- chemical facilities. In petrochemical facilities, propylene is used primarily in the manufacturing of plastics and resins. Propylene represents the smallest volume of the four HGL-by-rail products. Because U.S. HGL pipeline infrastructure has several limita- tions, rail movements of HGL have been an important part of the supply chain for years. Many HGL pipelines do not carry products that meet end use specifications (i.e. purity products), but rather a raw unprocessed mix of HGL referred to as y-grade. Pipeline infrastructure carrying purity products is not geographically wide- spread and lacks enough capacity to respond to seasonal surges in demand. Therefore, in many markets, rail and truck transporta- tion provide the only means of product delivery. With the significant growth in HGL production between 2010 and 2016 with the advent of combining horizontal drilling with hydraulic fracturing, movements of HGL by rail have increased in importance. Increased HGL production occurred in regions lacking sufficient pipeline capacity. This change required a reori- entation of transportation infrastructure, with movements by rail being one of the most rapidly available and flexible options. PADD 1 (East Coast) was traditionally a net recipient of HGL from other PADDs and, to a lesser extent, from abroad. As a result, HGL infrastructure on the East Coast was typically used to receive incoming supplies and distribute to local markets. Over the past six years, in-region net HGL production increased 147,000 b/d, or 243%, primarily in Pennsylvania and West Virginia. As a result of investments in rail-loading facilities and because rail was the only transportation method capable of accommodating the rapid growth in supply, HGL rail shipments originating in PADD 1 (including intra-PADD shipments) have increased from 16,000 b/d in 2010 to 113,000 b/d through November 2016. U.S. HGL-by-rail movement volumes through the first 11 months of 2016, including shipments to and from Canada, reached 426,000 b/d. Over the same time, fuel ethanol rail ship- ments averaged 637,000 b/d, and crude by rail shipments, after peaking in 2014 at over 1 million b/d, were down to 478,000 b/d Rail movements of HGL are likely to continue expanding as pro- duction, exports, and new sources of demand grow the market in the absence of major planned pipeline capacity expansions.. In contrast, expanded crude oil pipeline capacity and narrower regional price differences limit the economics of transporting crude oil by rail, while demand for ethanol shipments may be limited by growth in U.S. gasoline consumption. Source: This Week in Petroleum, published Feb. 8, 2017, by the Energy Information Administration, U.S. Department of Energy. EIA SHORT-TERM ENERGY OUTLOOK Forecast Highlights Implied global petroleum and liquid fuels inventories are esti- mated to have increased by 0.8 million barrels per day (b/d) in 2016. EIA expects the oil market to be relatively balanced in 2017 and 2018, with inventory draws averaging 0.1 million b/d in 2017 and builds averaging 0.2 million b/d in 2018. The revised fore- cast, which reduces average inventory builds from last month's outlook, resulted from changes to estimates of historical global liquid fuels consumption that created a higher base for con- sumption during recent years and the forecast period. U.S. crude oil production averaged an estimated 8.9 million b/d in 2016. U.S crude oil production is forecast to average 9.0 million b/d in 2017 and 9.5 million b/d in 2018. Benchmark North Sea Brent crude oil spot prices averaged $55/barrel (b) in January, a $1/b increase from December. This price was $24/b higher than the January 2016 average, and it was the highest monthly average for Brent spot prices since July 2015. EIA forecasts Brent crude oil prices to average $55/b in 2017 and $57/b in 2018. West Texas Intermediate (WTI) crude oil prices are forecast to average about $1/b less than Brent prices in 2017. The NYMEX contract values for April 2017 delivery traded during the five-day period ending February 2 suggest that a range from $45/b to $65/b encompasses the market expectation of WTI prices in April 2017 at the 95% confidence level. U.S. regular gasoline retail prices are expected to decrease HGL pipelines and rail terminals PADD 2 PADD 5 PADD 4 PADD 3 PADD 1 HGL rail terminal HGL pipeline Source: U.S. Energy Information Administration, based on data from the Surface Transportation Board and public sources

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