NYC-based PIRA Energy Group believes current Brent crude tightness will not last. In the U.S., crude build drives another record total U.S. commercial stock level. In Japan, crude runs eased and product stocks drew. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
World Oil Market Forecast, February 2015
PIRA's outlook for an improving global economy is on track. Current Brent crude tightness will not last. The basic problem is that the Atlantic Basin has no outlet for its excess crude, with Middle East producers aggressively pricing in Asia to maintain market share. The surplus hit Europe first, then North America, and now all prices point supply back to Europe.
Crude Build Drives another Record Total U.S. Commercial Stock Level
The U.S. crude balance structure that has bloated crude inventories to record levels continues unabated. Domestic crude supply is now up more than 1.5 MMB/D over the last four weeks, compared to last year, while crude imports remain stubbornly high, down only 0.55 MB/D over the same period. Weekly crude runs and exports are up a combined 0.7 MMB/D, but not nearly enough to forestall stocks growing at a faster clip than last year. Total commercial stocks built this week, to a new record high. With a draw last year, the year-over-year surplus increased. With falling crude runs but imports remaining around 7.30 MMB/D, crude stocks built.
Japanese Crude Runs Easing; Crude and Product Stocks Draw
Crude runs have begun to ease from maximum seasonal levels, while imports were low and crude stocks drew. Finished product stocks also drew moderately. Gasoline demand eased, but stocks still drew slightly, while gasoil demand was strong and stocks drew for the fifth straight week. The indicative refining margin remained strong. Gasoline cracks firmed, while other major product cracks eased slightly.
European LPG Prices March Higher
European LPG prices rose last week as higher winter demand was met by limited supply, as fewer import cargoes arrived in the region and refinery supplies have dwindled. Barge lots of propane were $39/MT higher at $533 Friday, at a slight premium to naphtha. Weather related export disruptions in Algeria and more expensive naphtha prices have also been bullish catalysts.
Ethanol Production Declines
U.S. ethanol production declined sharply during the week ending February 20 to a 15-week low 947 MB/D from 964 MB/D during the previous week. Inventories built by 510 thousand barrels to a 2½-year high 21.6 million barrels.
A Look at Political Risks in a Low Oil Price Environment
Supply disruptions continued to grow in 2014, but the growth in losses nearly halved relative to recent years, and the vast oversupply in today's global oil market is muting the impact of losses. While PIRA expects slightly lower disruptions in 2015, we believe important risks to supply are lurking. As in years past, violence and political turmoil do remain a threat, but this year risks are also emanating from the low oil price environment. In this note, we look at political risks in the $50-$60/Bbl oil price environment expected this year. PIRA believes the biggest risks to supply in 2015 come from presidential elections in Nigeria; economic deterioration in Venezuela; and fiscal constraints and political tensions between Baghdad and Kurdistan.
The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
Cal Dive International, Inc. (OTC: CDVI) ("Cal Dive", or the "Company") announced today that it and its U.S. subsidiaries have filed simultaneous voluntary petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. The Company's foreign subsidiaries have not sought bankruptcy protection and will continue to operate outside of any reorganization proceedings. The Company and its U.S. subsidiaries will continue to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court.
Through the Chapter 11 process, the Company will sell non-core assets and intends to reorganize or sell as a going concern its core subsea contracting business. During the reorganization process, the Company and its subsidiaries will continue to operate in the ordinary course, including completing the existing construction projects in Mexico for Pemex, and other ongoing diving and offshore construction projects for its customers worldwide. The Company anticipates no disruption in its services and its focus remains on delivering excellent project execution and safety performance for its customers.
The Company has received a commitment for up to $120.0 million in debtor-in-possession (DIP) financing from its current first lien lenders led by Bank of America, which will immediately provide additional liquidity to continue its operations during the Chapter 11 process. The DIP financing, which is subject to Court approval, will provide adequate funds for post-petition supplier and employee obligations, as well as the Company's ongoing operations needs during the Chapter 11 process.
Commenting on the filing, Cal Dive's Chairman, President and Chief Executive Officer, Quinn Hébert, stated, "Our business has experienced several adverse events that were beyond our control, and with our current capital structure, we are no longer able to financially withstand the industry downturn. In 2014, our financial performance suffered primarily as a result of delays caused by the suspension of two large projects, weather disruptions and delays caused by other contractors. Because these contracts contain milestone billing provisions, these delays and suspensions impeded our ability to invoice and collect payment for work performed, significantly impairing our liquidity which had already been reduced by declining industry conditions over the past several years. Our efforts to negotiate additional financing to fund business activities and pursue identified strategic alternatives were further impeded when oil prices plummeted, creating an additional, unexpected obstacle to our restructuring efforts. After considering several alternatives, we felt the Chapter 11 process was the most effective way to maximize value for our stakeholders."
Mr. Hébert continued, "We are committed to meeting the challenges of our industry head on. By availing ourselves of the Chapter 11 process, we can achieve an orderly restructuring for our business that has consistently produced competitive results under a more favorable capital structure."
More information on the Company's Chapter 11 process, including access to Court documents and other general information about the Chapter 11 cases, is available at www.caldive
NYC-based PIRA Energy Group believes resource control policies remained in a holding pattern in 2014, despite the collapse in oil prices in the second half of the year. In the U.S., commercial stocks decline slightly. In Japan, crude runs stay high, crude stocks build, and products drew. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
Lower Oil Prices Do Not Yet Affect Resource Control Policies
Resource control policies remained in a holding pattern in 2014, despite the collapse in oil prices in the second half of the year. Some marginal easing of contract terms did materialize in countries including Argentina, China, and the UK, but the majority of oil-producing countries maintained their existing policies toward foreign and private investment. Moreover, history suggests it would take a few more years of depressed prices to trigger a widespread move to ease contract terms and accommodate foreign investment.
Overall U.S. Commercial Stocks Slightly Decline
Last week's large crude stock increase was met for the first time this year with an even larger product stock decline, causing overall inventories to fall, for the first stock decline in 2015, albeit modest. Stocks fell a little bit more last year for the same week, pushing the year on year inventory surplus up. Crude oil accounts for 63 million barrels, or 45%, of the year on year surplus.
Japanese Crude Runs Stay High, Crude Stocks Build, Products Draw
Crude runs rose again and reached their highest level since mid-March of last year. Crude imports remained strong and crude stocks built. Finished product stocks drew with moderate draws for naphtha and kerosene, and lesser draws on the other major products. The indicative refining margin remained strong, with all the major product cracks firming.
Mont Belvieu NGLs Outperform
Strong heating demand drove a major draw in domestic propane stocks and was enough to keep propane prices unchanged on the week, despite a 5.5% decrease in crude prices. Butane prices gave up 1.6% as the end of blending season nears, while natural gasoline fell 1% week-on-week. Ethane was carried higher with natural gas, increasing 1.2¢ to 18.9¢/gal.
Ethanol Prices Rise
U.S. ethanol prices advanced the week ending February 13. Economics held relatively steady for the second straight week, with margins for PIRA's model plant based on Chicago values improving slightly, while those for PIRA's Iowa plant worsening a little.
The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
According to the United States Geological Survey, the area above the Arctic Circle holds approximately 90 billion barrels of undiscovered, technically recoverable oil and an estimated 1,670 trillion cubic feet of technically recoverable natural gas. Nevertheless, due to it being relatively inaccessible, Arctic oil commands the highest breakeven prices, typically ranging between $70 and $120 per barrel. In light of the current low oil price environment, Arctic projects are at risk of being deferred or cancelled.
Statoil has already halted plans to drill in the Barents Sea this year and has also let several Arctic exploration licenses off Greenland expire. In addition, the company's Johan Castberg project could face delay for the third time. As announced in December 2014, Chevron has cancelled plans to drill in Canada's Arctic, and in Russia, Western sanctions have thwarted Rosneft's plans to explore Arctic waters. The Russian state-controlled oil company will not be able to continue drilling in the Kara Sea in 2015 as a result of sanctions prohibiting its cooperation with ExxonMobil; drilling may begin in 2016 at the earliest.
Though there is widespread negativity surrounding projects, there is hope for Arctic oil yet. After a two-year hiatus, Shell plans a return to Arctic oil drilling this summer, in Alaska's Chukchi Sea. The super major will however, need to win permits and overcome legal objections to do so. Shell has already spent $1 billion on preparations for the drilling work. Another company that aims to continue drilling in the Arctic is Lundin Petroleum. The Swedish independent operator will carry on exploring the Barents Sea for new fields despite current market trends and in favour of a long-term view which they believe will deliver value in the future. This year, Lundin plans to drill four exploration wells and OMV, Wintershall and Eni one each.
Hannah Lewendon, Douglas-Westwood London
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