NYC-based PIRA Energy Group reports that there was the largest 2Q stock build in the last 10 years. In the U.S., there was a modest U.S. stock build. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
Largest 2Q Stock Build in Last 10 Years
Last week’s release of IEA stock data, combined with weekly data in the United States and Japan, show that commercial oil inventories in the three major OECD markets increased in the second quarter. Weak economic activity has undermined oil demand, forcing supplies into inventory. Higher inventories are undercutting PIRA’s confidence in its most recent oil price forecast. In contrast to Brent, front-month WTI remains well supported relative to further-out contracts by extraordinarily low inventories and strong September refinery demand.
Modest U.S. Stock Build
Overall commercial inventories increased this past week, keeping stocks relatively flat to last year’s level. The inventories of the four major products are 22 million barrels below last year, while crude is 6 million barrels higher.
PIRA Lowers Price Outlook
While we have not formally updated our detailed supply/demand balances, which will be done later this month, it is becoming clear that, because of weaker demand, inventories will be much higher than last month’s forecast. We should note that some of today’s downward price pressure could be coming from producer hedging.
2Q14 Tight Oil Operator Review
Second quarter results were positive across the board. There were no lingering effects from the harsh winter with considerable production gains in the Bakken, the Eagle Ford, the Niobrara and the Permian. Many operators cited renewed gains in completion efficiencies in mature plays, as well as growing success in smaller plays like the Powder River. Bakken and Eagle Ford operators increased frac sizes and laterals, leading to higher IPs and EURs. Yet the focus of the industry was centered on the delineation and development of the Permian basin, where the production potential continues to grow with the identification of further productive layers.
U.S. Ethanol Output Tumbles
For the week ending August 8, most U.S. ethanol prices rebounded from the lowest level in several months after the DOE reported production had plummeted and inventories decreased during the week ending August 1. Manufacturing margins declined slightly as the lower average price for ethanol and co-product DDG outweighed the fall in corn costs. U.S. Ethanol Inventories Fell to a 11-Week Low 17.8 Million Barrels Ethanol-blended gasoline production soared to a seven-week high 8,902 MB/D the week ending August 8, fairly close to the record 8,980 MB/D set earlier this year. As ethanol demand rose, inventories fell to an 11-week low of 17.8 million barrels, down 500 thousand barrels from the previous 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.
Successful Transformation from an Oil Trading, Transportation and Storage Company to a Resource-based Energy Enterprise
Brightoil Petroleum (Holdings) Limited ("Brightoil Petroleum" or the "Group"; stock code: 933.HK) announced the closing of a stock purchase agreement (the "Agreement") with Anadarko China Holdings 2 Company Limited ("Anadarko China"), a wholly-owned subsidiary of Anadarko Petroleum Corporation ("Anadarko Petroleum"), to acquire a participating interest in two oil producing blocks in Bohai Bay (Contract Area 04/36 and Unit Area 05/36) at a consideration of USD
1.046 billion.
Following the signing of the agreement on 18 February, the acquisition was successfully completed on
8 August after six months of efforts put together by both parties. After the closing of the Agreement, the Group now holds a 40.09% participating interest in the 124km2 offshore block (Contract Area 04/36) and a 29.18% participating interest in the 88 km2 offshore block (Unit Area 05/36). The operator of both blocks is CNOOC China Limited ("CCL").
As a result of this, the Company's oil and natural gas resources extend from the ground to offshore, and the Company's oil and natural gas storage and production will increase immensely. Together with its originally owned Dina1 and Tuzi natural gas field, the Company's interest in 2P storage is expected to reach approximately 86 million boe. When all these three areas are in operation, Dina1 and Tuzi and Bohai will reach a daily net production of approximately 25,000 boe, and an annual net production of approximately 9 million boe. Upon this successful Closing, the Company will reach a solid step-out and broaden its activities into energy resources supply and operation.
Dr. Sit Kwong Lam, Chairman of Brightoil Petroleum, said, "We believe that the closing of the acquisition marks the successful transformation of the Group in its aim to become a resource-based energy enterprise. The Group will continue to strengthen its development in the upstream business, aiming to achieve sustainable growth of its reserves, production volume and revenue in the long run. This will accelerate the Group's development into an international integrated oil & gas conglomerate and at the same time enhance our returns to investors and create further shareholders' value. "
About Brightoil Petroleum
Brightoil Petroleum (Holdings) Limited is a resource-based energy enterprise focusing on upstream oil and gas resources exploration, along with further developments downstream. The Group is principally engaged in the Exploitation and Production of Upstream Oil and Gas Fields, Marine Transportation, Oil Storage and Terminal Facilities and International Trading and Bunkering Business.
The Group has three oil and gas field projects in its portfolio, including Dina1 Gas Field, Tuzi Gas Field and Caofeidian Field in Bohai Bay. The Company's interest in 2P storage is expected to reach approximately 86 million boe. When all these three areas are in operation, Dina1 and Tuzi and Bohai will reach a daily net production of approximately 25,000 boe, and an annual net production of approximately 9 million boe.
The Group currently operates four Aframax Oil Tankers and five VLCCs, and has a marine transportation capacity that will exceed 2 million tons.
The Group's oil storage facility on Waidiao Island in Zhoushan, with a total capacity of 3.16 million cubic meters, is under construction. The facility will be equipped with 13 berths which can accommodate vessels from 1,000 to 300,000 DWT. Meanwhile, the Group's oil storage facility on Changxing Island in Dalian, with a total capacity of 7.19 million cubic meters, is also under construction. The facility will be equipped with 13 berths to accommodate vessels from 1,000 to 300,000 DWT.
The Group is one of the largest marine bunkering service providers in China with services expanded to global ports. The Group's tradable range of products is diversified into fuel oil, crude oil, gas oil, as well as petrochemical and the related petroleum products. The annual trading and supplying volume has reached approximately 20 million tons.
The Group will continue to develop its upstream business by stretching its tentacles into the exploration, exploitation and production of oil fields with a view to becoming one of the leading resources-based energy conglomerates in the world.
Recent news headlines on the LNG sector in Australia seem to be centered around its unsustainable rising costs. Woodside Petroleum had to ditch plans last year for its Browse LNG plant, which had gone way over budget at an estimated cost of US$80bn. In the interest of continuing the development, Woodside and its partners have now turned to FLNG vessels as a practicable alternative. More recently, Santos and GDF Suez have also scrapped plans to build gas plants off the Northern Territory Coast of Australia. Projects that have gone ahead have seen significantly increased costs. At approximately 80% completion, the Gorgon LNG project is now estimated to cost US$54bn – a sharp contrast to the original budget of US$37bn (46% over-budget).
In the meantime, despite Australia's LNG cost challenges, the United States is moving forward with the possibility of bringing onstream an LNG plant that would cost between US$2.2bn and US$3.7bn. Magnolia LNG in Louisiana is expected to come onstream in 2018, potentially the nation's first LNG export plant with the capability of processing 8 million metric tons per annum. This shows the feasibility of constructing similar infrastructure at that price, but outside Australia!
Australia's Woodside is, at the same time, looking to make a move overseas in search of better economics. The country stands to lose US$97 billion of potential LNG projects to East Africa and North America unless radical cost reduction is applied. Furthermore, Russia and China's $400bn gas deal could possibly undermine several of Australia's gas projects.
Australia has actively been finding ways of implementing reforms in an attempt to reduce operating costs. Even with the recent Russia-China deal, pipeline gas from Russia will only be supporting 6% of China's gas demand by 2030. China cannot avoid seeking diversity in its energy sources. New technologies and innovations, such as the much-anticipated FLNG vessels, will present themselves as potential solutions. With these cost-reducing opportunities/ challenges, it proves to be interesting how the scenario will play out for Australia, new LNG producer entrants elsewhere and the potential for new gas pipeline suppliers to China.
NYC-based PIRA Energy Group reports that the July stock decline at Cushing strengthens WTI. In the U.S., there was largest weekly stock draw since January. In Japan, crude runs and stocks rose. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:
July Stock Decline at Cushing Strengthens WTI
Stock levels for crude oil at Cushing dropped below 20 million barrels last month, for the first time since 2008. With logistical constraints still in place throughout much of the Midcontinent, most crude grades weakened relative to WTI, and even the Dated Brent premium shrank. However, the LLS premium strengthened, as Gulf Coast crude stocks dropped due to higher refinery runs.
Largest Weekly Stock Draw Since January
Overall U.S. commercial oil inventories fell this past week with a large product stock decline (the first since March) and a crude inventory decline. Crude stocks have fallen for six consecutive weeks. The large product inventory decline was supported by the strongest reported demand of the year. Overall inventories are now back below last year by 1.3 million barrels, with gasoline and distillate down roughly 10 and 2 million barrels, respectively.
Japanese Crude Runs and Crude Stocks Rise
Runs continued to rise in line with declining maintenance activity. Crude imports increased and crude stocks posted a modest build. Finished product stocks rose slightly. Gasoline demand fell back but lower yield allowed for a small stock draw. Gasoil demand was higher, but stocks still built on higher yield. Refining margins remain quite weak with the gasoline crack posting another sharp decline.
A Statistical Analysis of Cushing Crude Stocks and Storage Capacity Utilization
Different expressions of Cushing fundamentals, such a percent of storage capacity utilized, can have better relationships to WTI 1st – 2nd spreads than outright Cushing stocks. Over time, the strength in the correlation between Cushing fundamentals and WTI spreads has changed. Cushing fill ratios at either extreme of the historical range drive non-linear spread behavior.
Aramco Announces Crude Price Differentials for September
Saudi Arabia's formula prices for September were just released. Prices into the U.S. were cut, against the ASCI benchmark, across the board after two straight months at record highs. Pricing into Europe and the Med against the Bwave benchmark was raised. In Asia, not surprisingly, terms were made more generous.
BULLETIN: Market Dynamics Reflecting a New Reality
There is currently a crude surplus in the Atlantic Basin which has weighed on relative prices and narrowed light-sweet crude premiums. The development of this surplus during peak season Atlantic Basin runs and North Sea maintenance has caught a market by surprise typically conditioned for tightness at this time. Many people trade off historical relationships and expect them to continue. But supply/demand changes transform markets, even though it takes time for these markets to fully absorb the new reality.
Mt Belvieu Prices Stay Strong
The U.S. LPG complex remained strong in the face of falling energy prices worldwide. Cash propane at Mt Belvieu strengthened by over 2% to 102.4¢/gal. Propane prices dipped below $1 early in the weak, falling in sympathy with oil prices. Prices have rallied since Wednesday’s stocks report, as inventory increases have been decreasing in size. The prospect of a large crop drying season is also acting as a tailwind for prices.
Ethanol Prices Plunge
U.S. ethanol prices fell sharply the week ending August 1 after the DOE’s latest supply report showed that inventories had risen to a 16-month high the prior week. As a result, ethanol manufacturing margins were slightly lower.
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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