NYC-based PIRA Energy Group reports that federal activity to regulate fracking has picked up in December and so far in 2015. In the U.S., record weekly commercial stocks were reported. In Japan, crude runs eased and crude stocks built. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
Fracking Policy Monitor
Though slowed by the desire to avoid contentious issues ahead of November elections, federal activity to regulate fracking has picked up in December and so far in 2015. The Obama Administration announced the next steps to implement its Methane Strategy, seeking to reduce methane emissions in the oil and gas sector by 40-45% from 2012 levels by 2025. On the state level, induced seismicity continues to be an emerging issue. Ballot measures in the November election seeking to ban fracking had mixed results across Ohio and California, but notably passed in Denton, Texas.
Record Weekly Commercial U.S. Stocks Reported
Total commercial stocks built last week to the highest weekly total ever reported. With a sharp decline in crude runs, crude stocks built, the four major refined products built, and all other oils drew. With a total commercial stock draw this week last year of 10.3 million barrels (-7.7 crude, +5.0 four major refined products, -7.6 all other oils), the year-over-year commercial stock excess ballooned out 20.5 million barrels to 112.6 million barrels, or 10.8%.
Japanese Crude Stocks Build, as Crude Runs Ease, while Finished Product Stocks Draw
Crude runs eased fractionally on the week and crude imports remained sufficiently high to build stocks. Finished product stocks drew, largely on lower naphtha and jet-kero stocks. Gasoline demand was modestly lower and stocks built slightly. There was a minor draw on gasoil stocks, as demand rebounded from low levels and incremental exports rose. Kerosene demand was higher and stocks resumed drawing. Indicative refining margins remain relatively strong.
A Snapshot of the Positions on NYMEX Crude Oil Options Provides Insight
A snapshot on NYMEX WTI option exposure provides insight as to market protection levels, time coverage, and market depth. The option open interest on WTI, traded on the NYMEX, as of January 13th was 1.81 million "call" contracts (the option to buy crude oil at a specific strike price), and 1.47 million put contracts covering delivery from February 2015 through December 2022. Some 92% of total put contracts outstanding are in 2015, while 2016 accounts for only 7%.This is consistent with hedging positions of shale crude producers.
Low Oil Prices Are Bringing Down Global Inflation, Creating Room for Policy Easing
Headline inflation rates have come down sharply in developed economies because of low oil prices. Emerging world inflation has also broadly decelerated. The global low-inflation environment has created room for policy easing in key economies, most notably in the euro area. But the expected announcement of quantitative easing by the European Central Bank next week has also created unanticipated volatility in the foreign exchange market this week.
Ethane Cracker Margins Suffer
Inexpensive propane prices relative to ethane continue to make C3 the most economical petrochemical cracker feedstock in the United States. At $0.43 per lb ethylene produced, C3 remains just over 10¢/lb better than ethane, per PIRA calculations. Butane's cracking margin, which was nearly equivalent with propane over the last few weeks, fell. Strong ethane prices relative to LPG, should they persist, complicate plans for the construction of at least six world scale ethane crackers on the USGC by 2020.
Ethanol Prices Decline Again
U.S. ethanol prices stumbled to a six-year low the week ending January 9, following petroleum values rather than corn costs. The weakest demand in about a year and the highest inventories in about 22 months also put downward pressure on prices.
Ethanol Stockpiles Jump to the Highest Level in Two Years
U.S. ethanol Inventories built by nearly 1.4 million barrel the week ending January 9, reaching 20.2 million barrels for the first time since February 2013. This was the largest week-on-week gain ever reported.
Fuel Price Subsidies: Crude Price Weakness Accelerating Moves to Market Pricing
Since PIRA's August 2014 update on fuel prices and subsidies, oil prices have collapsed, from an August average of $102/Bbl to below $50/Bbl. Several governments have taken advantage of the weak price environment and removed subsidies for major petroleum products, including Indonesia, Malaysia, and India. In most cases, the move away from a fixed (and previously subsidized) price coincided with a retail price cut, reducing the risk of political backlash. However, these policy changes will affect just 5% of global gasoline and diesel demand in 2015. Most oil importers now price major petroleum products at or near market levels, while the majority of subsidies remain in large oil-exporting countries, where price hikes do not appear imminent for political reasons.
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.
Companies in the deepwater drilling market have lost more than half of their value over the last year; Transocean, Seadrill, ENSCO and Diamond are currently priced 56% lower on average compared to January 2014 in line with the decrease in oil prices. While these sharp falls in share prices reflect similar trends across the oil and gas industry, the number of active ultra-deep water rigs have remained high with 171 units contracted versus 175 units last January. Dayrates have also increased slightly from an average of $470,000 to $485,465, though this is largely a result of contracts signed before the fall in oil prices.
Concerns about drilling contractors' backlogs and their ability to put their most expensive assets to use are well founded with operators announcing decreases in capital expenditure. However, based on Douglas-Westwood's offshore drilling forecast, there are still plenty of wells to be drilled if the 2015 oil prices average between $50-70bbl. Total wells drilled could be expected to increase by 17% by 2020 with deepwater wells growing at 32%, despite the current price environment.
A fundamental issue is not only a lack of demand, but one of the industry's own making. The recent build cycle has resulted in a sharp growth in supply that will need time to be absorbed by expected long-term growth in demand. Like other subsectors of the offshore marine industry such as offshore vessels and production assets, supply not just demand will determine the future direction of the offshore drilling market.
Kian Zi Chew, Douglas-Westwood Singapore
+65 6635 2004 or This email address is being protected from spambots. You need JavaScript enabled to view it.
www.douglas-westwood.com
Cal Dive International, Inc. (OTCMRKTS: CDVI) is a marine contractor that provides manned diving, pipelay and pipe burial, platform installation and platform salvage services to a diverse customer base in the offshore oil and natural gas industry. CDI offers its customers services on an integrated basis for complex offshore projects. Its global footprint encompasses operations on the Gulf of Mexico, Outer Continental Shelf (OCS), the North-eastern United States, Latin America, Southeast Asia, China, Australia, the Middle East and the Mediterranean. As of December 31, 2011, the Company owned a fleet of 29 vessels, including 19 surface and saturation diving support vessels, six pipelay/pipebury barges, one dedicated pipebury barge, one combination derrick/pipelay barge and two derrick barges. In June 2014, Cal Dive International Inc. sold its United States Gulf of Mexico shallow water surface diving fleet to privately held company.
The company's stock lost more than 90% of its value during 2014, and was priced at $0.07 on 31st Dec, 2014. The stock price drifted downward steadily for years due to a downturn in drilling activity following the Maconda disaster in the Gulf which left the company with underused capacity. Cal Dive International's stock was delisted from NYSE at the end of October 2014, then made a hit on OTCBB with high trading volume. The stock price had been highly volatile for the rest of 2014.
Since the beginning of 2015, Cal Dive International has been making a spectacular move up on accelerating volume. Also, short-term moving average crossed long-term moving average from the below on January 12th, which seems to indicate ascent in stock price in the near term. However sustainable share rally has be supported by fundamental improvements in the company and oil industry, which cannot be seen in the near future.
One of the firm's main catalyst for growth is the deregulation in the Mexico Gulf. Cal Dive International is in a prime position to take advantage of deregulation in the Mexican oil and gas market as they are already working for Pemex, the state-owned oil Company, which is set to be privatized as part of deregulation.
Cal Dive International estimates to have its Q4 2014 Earnings Release on the 2nd March, 2015.
For a more detailed research report with analyst comments and recommendations on CDVI please follow the link. There is no cost obligation to view the analyst brief:
http://bit.ly/-CDVI-AnalystReport
NYC-based PIRA Energy Group reports that Cushing crude stocks build on tight LLS-WTI spread. In the U.S., there was a rare December stock build. In Japan, crude stocks drew at year-end and remained low as the new year began. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
Cushing Crude Stocks Build on Tight LLS-WTI Spread
As WTI prices continued to fall in December, plunging another $17/Bbl, improved takeaway capacity lent support to Canadian and Rockies crudes. Narrower Gulf Coast grade differentials kept the Cushing-Houston arb firmly shut, which, along with year-end tax incentives, contributed to a very large stock build at Cushing. A tightening LLS-WTI spread (currently less than $2/Bbl) will ensure that Cushing receives a major share of the large first quarter U.S. stock build — with stocks likely approaching 80% of capacity by this spring.
Rare December U.S. Stock Build
The last time the United States built inventories in December was in the middle of the financial crisis in 2008. Preliminary weekly data are pointing to a 23 million barrel December 2014 inventory build, 9 million barrels higher than the December 2008 stock build. The way things currently look, the United States did not draw inventories in the fourth quarter, nor did the three major OECD markets combined. Not surprisingly, the "creeping" stock surplus has already become quite apparent, and there will be more to follow. This fear of what lies ahead is damaging to an already extraordinarily weak demand for inventory, which will have to cope with increased inventory supply. A rare bullish catalyst will begin with index rebalancing, which should lead to net new purchases of some 60 million barrels of crude, mostly Brent.
Japan Weekly Oil Data Updates through Year-End and into January 2015
Two weeks of data were reported this past week. Crude runs rose at year-end and then fell back. Crude stocks drew at year-end and remained low as the new year began. Gasoline demand jumped higher due to the holidays and then eased a bit. Gasoil demand was slightly weaker at year-end and then plunged as the new year began, with economic activity off for the holidays. Kerosene demand posted a strong draw at end-year and then a contra-seasonal build. Refining margins remain relatively strong.
U.S. Drivers Buying Less Efficient Vehicles with Lower Fuel Prices
Recent U.S. vehicle sales data suggest that, with lower fuel prices, vehicle purchasers are placing less importance on vehicle efficiency and are buying fewer hybrid and alternative fuel vehicles. Vehicle sales in 2014 have been very strong, and relative to 2013 a higher proportion of these vehicles are SUVs and light trucks, rather than cars. Even a short period of high sales of low-efficiency vehicles can have a long-term impact on fuel demand since vehicles remain within the fleet for longer than a decade — often much longer.
European LPG Price Rout Continues
European LPG prices swooned as the market adjusted to significant discounts in contract prices from Algeria and Arabian Gulf exporters. February propane futures plunged 11.3% to $302/MT, while cash butane was a remarkable 20% lower week-on-week. Large butane cargo prices, at under $280/MT, are back below those for propane, as cracker outages and low blending demand continue to plague the feedstock. Low demand and poor olefin prices will continue to pressure LPG in Europe. High prices relative to naphtha in Asia and expectations of lower Saudi contract prices in February will keep buyers on the sidelines for the time being.
Saudi Arabia Announces Pricing for February Barrels
Saudi Arabia's formula prices for February were released. Differentials to Northwest Europe were lowered across the board $1.40-1.70/Bbl, with the greatest reductions on the lightest grades. Asian pricing was raised across the board $0.55-0.70/Bbl. For the U.S., pricing was raised on Arab Heavy but lowered on all the lighter grades: Medium, Light, and Extra Light. The February differentials appear to focus on individual market pricing particulars as opposed to sending a message of expanding Saudi market share. Economics favored tighter differentials for Asia, while Europe continues to be plagued by an oversupply of Atlantic Basin crudes, hence the cut.
U.S. Ethanol Prices Continued to Pull Back at the End of Last Year
The fuel additive remained above gasoline values, although the premium narrowed. Manufacturing margins declined for the fifth straight week.
Ethanol Inventories Soar
U.S. ethanol production fell to an eight-week-low 949 MB/D the week ending January 2 from 972 MB/D during the preceding week peaking. Inventories soared by 751 thousand barrels last week to a 96-week-high 18.845 million barrels.
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.
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