Crude Market View

CrGlobal Commodities Research JPMorgan Chase Bank, NA September 30, 2013

Oil Market Monthly: US Midwest clear up: less gluts, more glory for WTI

 The increase in crude runs and build-out of transportation infrastructure have led to significantly tighter price spreads for BrentWTI than have been seen since 2010. As Bakken crude continues to be sent to the East and West Coast refiners, the bottlenecks around Cushing will continue to clear. This is likely to lead to tighter WTI spreads against LLS through the rest of this year. As a buffer of transportation capacity emerges, the Midwestern refiners will have to compete in order to keep crude in the region. This competition should, in turn, also keep the Brent-WTI spread narrow through 4Q2013. We estimate $4/bbl. In coming weeks, crude buying will reach its seasonal lows. Global refinery runs will likely fall to 74.1 mbd in October compared to an estimated 77.5 mbd in July. We note downside risk to our 4Q2013 runs projection given the current weakness in margins and the likelihood that product supply growth will outstrip demand growth from October to December 2013. This month we re-evaluate our price forecasts. While the strong upward move in crude prices and the tightening in timespreads have validated our bullish expectations, flat prices have nonetheless come in a few dollars below our forecast. This shortfall appears to stem from softer than expected EM demand, which is persisting into 4Q2013. Consequently, we lower our Brent 4Q2013 average price forecast to $113/bbl from $117/bbl. We now expect price to average $112/bbl in 2014. There continue to be large supply risks in the MENA region, with potential for tensions in the Middle East and Africa to escalate.





Colin Fenton

(1-212) 834-5648 colin.p.fenton@jpmorgan.com

David Martin

(44-20) 7134-0067 david.g.martin@jpmorgan.com

Megan Hansen

(1-212) 834-3747 megan.v.hansen@jpmorgan.com

Upadhi Kabra

(44-20) 7134-1034...