NYC-based PIRA Energy Group reports that oil inventories are higher and crude demand is lower. In the U.S., stock surplus to last year is roughly flat. In Japan, crude stocks draw amid peak run rates. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
World Oil Market Forecast
Oil inventories are higher, crude demand is lower and PIRA is beginning to question the expected 2H 2014 and 2015 lift off in economic activity. Also, add in unrelenting upward revisions to U.S. oil supply growth with non-OPEC supply additions continuing to substantially outpace demand growth and you have a combination of factors pointing to lower prices.
Stock Surplus to Last Year Roughly Flat
This past week’s inventory increase kept the year-on-year overall stock surplus to around 4 million barrels. The crude inventory decline took crude stocks slightly below last year, and at current high run rates crude stocks are still relatively tight, which was reflected in September relative prices. The product stock change reflected lower product imports (to a new low for the year) being offset by weaker reported demand and higher product output.
Japanese Crude Stocks Draw Amid Peak Run Rates, Finished Product Stocks Continue Building
Runs rose fractionally on the week and lower crude imports led to a crude stock draw. Finished products, however, have continued rising amid peak runs. Gasoline demand was higher but is still seen as underperforming seasonal expectations. Gasoil demand rebounded from very low levels. Kerosene stocks continued to build along seasonal norms. All the product cracks improved on the week and our indicative margin indicator rose, but remains rather weak.
Impact of Russian Gas Flow Interruption on Oil Demand
In the low probability event of a complete Russian gas flow stoppage to Europe, oil demand could potentially increase 600 MB/D. In the more likely scenario, still just 30% probability, of a stoppage of flows through Ukraine to Europe, the impact on oil demand would not be material.
U.S. Refinery Turnarounds, September 2014 – December 2015
There was a relatively high level of crude unit downtime during August and the level of both planned turnarounds and other outages carrying over from the current month is expected to increase over the next couple of months.
Freight Market Outlook
A glut of crude oil in the Atlantic Basin has caused the flat price of crude to fall and regional grade differentials with Asia to narrow substantially. The Brent-Dubai spread has narrowed to its lowest value in four years, prompting a significant increase in the number of West African cargoes headed to Asia in August. In addition, the Dubai price structure is now in contango, with forward prices higher than those for the prompt month, making it easier to hedge cargoes on the long voyages from the Atlantic. This is a good omen for VLCC operators as more vessels are tied up on long voyages around the horn of Africa from the Atlantic to Asia. The flip side, of course, is that Mideast liftings to Asia in the fourth quarter will have to decline to make room for the added Atlantic Basin supplies.
Asian LPG Prices to Benefit from Lower Saudi CPs
LPG prices in Asia held steady this week, prior to this weekend’s imminent release of Saudi contract prices for Sept tons. CP futures prices indicate that the propane CP could fall while Asian destination markets show that the butane CP could remain flat or perhaps drop by $10/MT.
Ethanol Demand Soars
U.S. ethanol-blended gasoline manufacture soared to 8,904 MB/D the week ended August 22, up from 8,667 MB/D during the prior week and very close to the record 8,980 MB/D set in May. Ethanol output dropped to 913 MB/D, the second lowest rate of production since April.
U.S. Ethanol Prices Rise in August
Ethanol prices rose in August, after falling during the prior three months. The market tightened as stocks drew by the largest amount since March 2013.
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.
A Chinese company with both the capital and ambition to strategically expand its influence is the most likely suitor for Citgo Petroleum Corporation (CITGO), which state-owned Petróleos de Venezuela, S. A. (PDVSA) is looking to sell for at least $10 billion, with a Canadian bid also possible, says an analyst with research and consulting firm GlobalData.
Carmine Rositano, GlobalData's Managing Analyst covering Downstream Oil & Gas, states that Chinese companies, such as Sinopec and China National Offshore Oil Corporation, have already invested billions of dollars in Canadian oil sands projects and could use their equity production to supply heavy sour crude oil to the CITGO refineries.
GlobalData asserts that while the assets on offer are strategic to the US energy complex, a Chinese bid would be more flexible in terms of structuring a deal that meets PDVSA and Venezuela's requirements.
Rositano says: "Venezuela currently exports 500 thousand barrels per day (mbd) of crude to China to pay off its $17 billion debts, but additional loans now require a further 100 mbd. Despite extensive reserves, PDVSA has struggled to meet production targets as the government has allocated increasingly less funding to upstream development.
"As such, freeing up crude that would otherwise be sold to CITGO would enable Venezuela to meet its obligations with China."
Another possibility is that a Canadian oil company will bid for CITGO's assets. Suncor and Husky Oil own refineries in the US, with Suncor processing Canadian crudes at its facilities and Husky Oil upgrading its refinery to increase the running of Canadian oil sand crudes.
Rositano explains: "Canadian oil sands crude production is forecast to increase steadily, and the status of proposed pipelines to transport crudes to Canada's west coast for exports is now uncertain, with lawsuits against the proposals pending.
"Purchasing the three CITGO refineries, which are already geared to run heavy sour oil sand crudes, would appear to be a good option for a Canadian oil company."
Although PDVSA has long considered selling CITGO, Rositano believes the timing is now better than ever, and says that reasonable offers are not only likely to be considered, but previous deals suggest that they will be lower than the reported $10 billion asking price.
NYC-based PIRA Energy Group reports that there is potential for Iceland volcano eruption to disrupt North Atlantic air traffic and jet fuel demand. In the U.S., crude stocks draw larger than the product stock build. In Japan, low demand builds product stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Potential for Iceland Volcano Eruption to Disrupt North Atlantic Air Traffic and Jet Fuel Demand
Iceland’s Met Office warned that the country’s largest volcano might erupt, potentially posing a threat to air traffic in the North Atlantic. This is reminiscent of 2010’s eruption of Iceland’s Eyjafjallajökull volcano, which disrupted air traffic in the North Atlantic and Europe for about a week cutting oil demand.
U.S. Crude Stocks Draw Larger than Product Stock Build
The August 15 commercial stock draw was less than last year’s draw, widening the year-over-year stock excess. The crude draw exceeded last year’s, narrowing the crude excess versus last year. The four major refined product stocks built a collective 1.4 million barrels, and with a draw last year, their collective deficit narrowed. All other product stocks built less than last year so their excess narrowed. We remain in the pattern of the major refined products being in deficit, all other products being excess, and the crude stock position osculating from looser to tighter, especially when considering stocks required for crude infrastructure expansion.
Low Demand in Japan Builds Product Stocks
Two weeks of data were reported this past week due to the annual mid-August hiatus. Crude stocks rose over the last two weeks, but more troubling was a large build in finished stocks, much of it gasoil, but to a lesser extent kerosene (seasonal), and fuel oil. Demand in the latest week was extraordinarily low.
Asian LPG Prices Stronger
Recent strength in local South China prices helped lift LPG more than 2% in Asia this week. Propane cargoes for October delivery were called $18.50 higher at $836.50 while butane rose by the same amount to $876.50/MT. The October Propane FEI settled $6 higher than the cash market. Lower imports into China, in part due to a change in tax invoicing, has led to inventory draws – prompting a $32/MT rally in local prices last week. Strong discounts to naphtha and improved seasonal demand should support prices next week while recent price strength leaves room for a correction.
U.S. Ethanol Output and Stocks Rise
U.S. ethanol production reached 937 MB/D the week ending August 15, up from 931 MB/D during the previous week as more plants are operating near capacity. Stocks built 491 thousand barrels to 18.3 million barrels.
U.S. Ethanol Prices and Margins Increased
Ethanol prices soared the week ending August 15 as the market tightened. Demand in the domestic and export markets were strong, while production remained significantly below the June peak.
Global Political Risk - Political Risk Scorecard
Growing Libyan exports, continued U.S. intervention in Iraq, and reduced tensions in Ukraine will weigh on prices next week.
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.
HOUSTON, Aug. 14, 2014 /PRNewswire/ -- Deep Down, Inc. (OTCQX: DPDW) ("Deep Down" or the "Company"), an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services, reported financial results for the quarter ended June 30, 2014.
OPERATING RESULTS
For the second quarter of 2014, Deep Down reported a net loss of $1.2 million, or $0.08 loss per diluted share, compared to net income of $1.0 million, or $0.10 income per diluted share, for the second quarter of 2013.
Revenues for the second quarter of 2014 and 2013 were $5.8 million and $9.2 million, respectively. The $3.4 million decrease (37 percent) is the result of the 2013 period being unusually high. Additionally, projects valued in excess of $17.0 million were delayed during the second quarter of 2014, resulting in lower revenues of approximately $7.0 million.
Gross profit as a percentage of revenues for the second quarter of 2014 and 2013 was 29 percent and 38 percent, respectively. The nine percentage point decrease in gross profit was due primarily to the delay of several lump sum projects just discussed. The delay of these projects negatively impacted the gross margin by approximately $2.6 million.
Selling, general and administrative expenses ("SG&A") for the second quarter of 2014 was $2.8 million, or 48 percent of revenues. SG&A for the second quarter of 2013 was $2.4 million, or 26 percent of revenues.
The $0.4 million increase in SG&A is due primarily to quality, project management, engineering, shop improvements related to safety systems, increased security costs and an increase in bad debt expense.
A significant portion of the increase was due to the impact of the decision to delay a Latin America regional operation in Panama, which included a $0.2 million accrual of all related costs, and an increase in security costs at the new facility of $0.1 million.
The Company's management evaluates its financial performance based on a non-GAAP measure, Modified EBITDA, which consists of earnings (net income or loss) available to common shareholders before net interest expense, income taxes, depreciation and amortization, and other non-cash and non-recurring charges. Modified EBITDA was $(0.3) million for the second quarter of 2014 vs. $1.7 million for the second quarter of 2013. The $2.0 million decrease in Modified EBITDA was due to a $1.8 million decrease in gross profit before depreciation due to reasons previously discussed, and a $0.2 million increase in SG&A before Panama exit costs and share-based compensation expense, also due to reasons previously discussed.
For more information, please visit: Deep Down, Inc.
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