YC-based PIRA Energy Group believes that Oil demand growth will improve in 2H14 with stronger economic growth. In the U.S., with crude stock draws expected and improving product demand, stock builds will continue to decline and ultimately become stock draws in the weeks ahead.  In Japan, crude runs were marginally changed while crude imports remained low enough to limit the stock build. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast

Oil demand growth will improve in 2H14 with stronger economic growth. Iraq’s crude production losses in 2H14 will be made up primarily by Saudi Arabia, but global spare capacity will fall to just 1.4 MMB/D August through November. This is expected to support higher crude oil prices. In 2015, lower Iraq production will again require higher output from Saudi Arabia, but much less so because of weaker demand from higher prices and assumed increases elsewhere in OPEC. Refinery margins will be somewhat weaker because of higher crude prices.

U.S. Stock Building to Slow Down

With crude stock draws expected and improving product demand, stock builds will continue to decline and ultimately become stock draws in the weeks ahead. This past week overall U.S. oil inventories increased. This widened the year-on-year inventory deficit to 25 million barrels with all major categories below last year. Even though PIRA is forecasting a stock draw for next week’s DOE data, the year-on-year inventory deficit will narrow because of last year’s very large inventory decline for this particular week.

Japanese Crude Runs Stay Low, Product Demands Rise

Crude runs were marginally changed while crude imports remained low enough to limit the stock build to less than 1 MMBbls. Finished products drew 2.6 MMBbls. Product demands were all higher, leading to broad based stock draws. Refining margins were little changed but remain soft.

Inventory Build Rate Slows, But Climb in Weeks Ahead

U.S. weekly propane prices strengthened 1.3% to 107.8¢/gal this week on a lower-than-expected stock build. For the second week in a row, the total propane/propylene inventory increase was below three million barrels. The latest data from the Department of Energy showed that total C3 (propane + propylene) stocks increased by 2.43 MMB, below the monster 3.4 MMB+ rate of increase observed in late May and early June. Strong inventory builds over the next few weeks, due to dramatically lower exports, should reduce or eliminate the year-on-year stock deficits caused by this winter’s record conditions.

U.S. Ethanol Prices Tumble

Ethanol prices tumbled last week as record production during the week ending June 13 greatly outweighed the robust demand, declining inventories and rising corn costs. Margins for ethanol manufacture were the lowest since February, partly due to plunging co-product DDG values as China stopped buying this animal feed component from the U.S. on concerns it might contain unapproved genetically modified organisms.

Ethanol Production Plummets

U.S. ethanol production plummeted to 938 MB/D the week ending January from an extraordinary 972 MB/D during the previous week as weather-related issues in the Midwest curtailed operations at several plants. This was the largest week-on-week decline since January.

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.

Datacom, LLC ("Datacom") has secured a capital investment in the Company of $19.2 million led by Main Street Capital Corporation (NYSE: MAIN) ("Main Street").

The initial investment proceeds were used to complete a minority recapitalization, refinance existing debt and provide working capital for growth in Datacom.

In addition to the initial investment, Datacom secured an additional tranche of growth capital totaling $13 million through the Main Street-led facility to expand its current business lines and make acquisitions.

Datacom's management team retained majority equity ownership in Datacom. Its leadership consists of veteran energy telecommunications and engineering managers who have a combined 175 years of experience in the field.

CEO and founder, John Poindexter, and COO Walt Messa, said, "We are happy to welcome Main Street as a capital partner in Datacom, and we are eager to pursue the significant growth opportunities that are available to the Company with this large capital pool and major financial partner like Main Street. We believe this will be a period of exciting and exponential growth for Datacom and its employees."

Datacom was assisted in its selection of a capital partner and counseled throughout the transaction by Bruce Bown of Dancing Bear Resources, LLC.

Datacom, LLC
Datacom, LLC is a leading provider of telecommunications, security, surveillance, engineering and data transfer services and products for companies involved in operations in remote and harsh environments. Founded in 2002, Datacom serves the onshore and offshore energy industry from its headquarters in Lafayette, Louisiana, and offices in Cutoff, Louisiana; Carthage, Texas; Devine, Texas; and Midland, Texas.

NYC-based PIRA Energy Group believes that Brent crude prices will average higher as global oil markets tighten. On the week, U.S. products continue to build, crude draws again.  In Japan, turnarounds continue, crude stocks build. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

European Oil Market Forecast

Brent crude prices will average higher, in the $110-115/Bbl range for the third quarter, as global oil markets tighten. Urals differentials will firm over the next two months. Rising product exports from Russia, the U.S., and Saudi Arabia will be absorbed by demand increases in Latin America, Africa, and elsewhere in the Atlantic Basin, as well as by lower runs in Europe year-on-year.

U.S. Products Continue to Build, Crude Draws Again

Overview inventories increased this past week with product stocks increasing while crude stocks fell. It was the second consecutive weekly crude inventory decline, and declines should generally be commonplace in the weeks ahead. For products, the large inventory build reflected weak reported demand. It turns out last year’s stock build for the same week was more than twice the size of last week's reported inventory increase, thereby widening the year-on-year stock deficit. Most of the deficit is in crude and the two major light products.

Japanese Turnarounds Continue, Crude Stocks Build

Crude runs dropped back, and while crude imports also dropped, crude stocks built over 4 MMBbls for the second straight week. There have been two key delays in planned turnarounds, which will keep runs low for at least the next two weeks. Finished products drew slightly. Product demands showed only modest changes. Refining margins continued to decline with all the cracks, other than fuel oil, losing ground. Margins are deemed to be weak, despite ongoing refinery downtime.

International LPG Prices Mixed Last Week

Despite WTI crude oil prices rallying nearly 3% last week, U.S. propane prices were flat on another huge stock build. Butane prices fared only slightly better. High U.S. LPG inventories, which will soon be in surplus to the year-ago period, will pose challenges for domestic prices. European and Asian LPG prices proved to be far more susceptible to geopolitical supply risks than their American counterparts. Both European propane and butane surged with rising crude by 3% to $780/MT and $747/MT respectively. Asian prices were even stronger with propane’s weekly average up 3.1% to $919/MT, and butane up 3.3% to $921/MT. A lack of incremental European demand and tight competition with naphtha in Asia will continue to act as headwinds for international LPG prices. Record waterborne exports from all regions to Asia will ensure the region remains well supplied in June.

Ethanol Prices Decline

U.S. ethanol prices declined during most of the week ending June 6 due to greater production, rising inventories, and lower corn costs. Prices manufacturing margins fell, breaking three straight weeks of gains, as lower product and co-product prices outweighed the decrease in corn cost.

Ethanol Output and Stocks Increase

U.S. ethanol production increased for the fifth consecutive week the week ending June 6 to 944 MB/D, the highest level thus far in 2014. Inventories accumulated, building by 172 thousand barrels to a 14-month high 18.4 million barrels.

Iraq Update Conference Call with Dr. Kenneth Pollack and Dr. Gary Ross

Iraq is now in a state of sectarian civil war. The most likely situation is that Iraq will become mired in a Syria-like stalemate, with the population divided along ethno-sectarian lines. Kurdish independence looks more likely, but only if Turkey supports an independent Kurdistan. Northern Iraqi exports are unlikely to return, but the 2.6 MMB/D of current southern exports could remain relatively well-protected in Shia-dominated territory. However, periodic disruptions are likely, either from local extortionists or Sunni militia attacks. Right now, oil markets are firmly in a $110-$115/Bbl Brent price range, but even a temporary disruption in the south could quickly send prices into a $115-$120/Bbl range, where risks of an SPR release would increase. Forecast Iraqi production growth (in 2014, 2015 and beyond) is now called into question, providing more support to prices as the pressure on Saudi Arabia to cut production (in 2015+) is likely diminished.

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.