NYC-based PIRA Energy Group Reports that on the week, U.S. commercial oil stocks built; the largest increase since 2009. Japanese crude stocks also built, while demand is still impaired. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Commercial Oil Inventories Build W/W

Commercial oil inventories built 14.5 million barrel the week ending April 11, the largest weekly increase since 2009. Crude stocks gained 10 million barrels, the largest increase in over five years, with the SPR contributing just 0.6 million barrels to the increase. Crude stocks have now moved above 2013 levels for the first time this year, while all the main product categories are below last year. 

Japanese Stocks Build, Demands Still Impaired

In Japan, total commercial stocks rose 4.6 MMBbls for the second straight week. Crude stocks built 2.7 MMBbls with finished products rising 1.5 MMBbls. All the major product stocks built, with the exception of naphtha. There is still demand impairment from the April 1st consumption tax increase, although the impact should soon begin to diminish. The indicative refining margin was modestly higher and margins remain good.

February Census Exports Clarify February U.S. Product Demand & Crude

The month-on-month decline in distillate and gasoline exports for February, 2014, as well as the EIA’s export plug used during the weeks of February, resulted in upward revisions to calculated February U.S. product demand. For distillate, February exports point to an upward demand revision close to what one would expect with the colder weather. For gasoline, February exports imply an added 190 MB/D to the demand rates reported in the weekly. Some of this demand growth could be a function of declining efficiency. On the crude oil side, exports of 240 MB/D during February reflected a continuation of the recent high level of crude exports to Canada.

Weaker Price Environment to Benefit Vessel Operators

PIRA expects a weaker price environment over the next five years will prove beneficial to vessel operators by reducing bunker costs from current levels. The flat prices for crude and products over the past several years have been stable as positive supply news from rapidly rising shale production has been nearly offset by continued supply disruptions both from OPEC and non-OPEC nations. Risks still remain to Iraqi, Libyan and Venezuelan crude supplies.

Rising Freight Rates To Alter Trade Flow

The shoulder season is seeing anticipated U.S. propane stock builds. Exports are active, but sharply rising freight rates will lead to some trade flow shifts in the weeks ahead. Ethane usage is being impacted by a relatively high level of cracker downtime. Overseas markets are seeing more LPG feed usage.

Ethanol Output Jumps W/W

U.S. ethanol production soared to an eighteen-week high 939 MB/D the week ending April 11 from 896 MB/D during the preceding week. This was the second highest output since January 2012 as the industry is finally breaking free of the frigid weather and logistical problems that have hampered operations over the past few months.

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.

Oceaneering International, Inc. (NYSE: OII) has reported record first quarter earnings for the period ended March 31, 2014 and that its Board of Directors declared a regular quarterly dividend of $0.27 per common share, an increase from its prior quarterly dividend of $0.22 per share.  The dividend is payable June 20, 2014 to shareholders of record at the close of business on May 30, 2014.

On revenue of $840.2 million, Oceaneering generated net income of $91.2 million, or $0.84 per share.  During the corresponding period in 2013, Oceaneering reported revenue of $718.6 million and net income of $74.8 million, or $0.69 per share.

Year over year, quarterly EPS increased 22% on profit improvements by all oilfield business operations.  Sequentially, quarterly EPS declined, as anticipated, as a result of lower operating income from Subsea Products and Subsea Projects. 

M. Kevin McEvoy, President and Chief Executive Officer, stated, "We are off to a good start to the year as our record first quarter EPS was above our guidance.  All of our business segments performed well relative to our forecasts, and we continue to expect to achieve record EPS for a fifth consecutive year.

"Compared to the first quarter of last year, quarterly ROV operating income improved on an increase in days on hire, the expansion of our fleet, and an improvement in operating margin.  Our fleet utilization increased to 86% from 83% a year ago.  During the quarter we put 14 new systems into service and retired 4.  At the end of the quarter, we had 314 vehicles in our ROV fleet, an increase of 20 from March 2013.  For the balance of 2014, we expect to place 16 to 21 more new systems into service.

"Subsea Products operating income was higher due to improved demand for subsea hardware and an increase in umbilical plant throughput.  Our Subsea Products backlog at quarter-end was $894 million, compared to $776 million at the end of March 2013 and $906 million at the end of December 2013.

"Subsea Projects operating income increased on higher deepwater vessel activity in the U.S. Gulf of Mexico and offshore Angola.  Asset Integrity operating income improved on increased service demand in the Middle East and the Caspian Sea area.  Advanced Technologies operating income was lower on reductions in theme park project work and U.S. Navy submarine maintenance and engineering service activity.

"Our outlook for the rest of this year remains positive.  We continue to project record EPS for 2014 in the range of $3.90 to $4.10.  We anticipate sustained global demand growth for our services and products to support deepwater drilling, field development, and inspection, maintenance, and repair activities.  We expect all our oilfield segments to achieve higher income in 2014 compared to 2013.  For the second quarter of 2014, we are forecasting EPS of $0.97 to $1.01.

"Our liquidity and projected cash flow provide us with ample resources to invest in Oceaneering's growth.  At the end of the quarter, our balance sheet reflected $106 million of cash, $90 million of debt, and $2.1 billion of equity.  During the quarter we generated EBITDA of $186 million and for 2014 we anticipate generating at least $850 million of EBITDA. 

"During the quarter we repurchased 500,000 shares of our common stock at a cost of about $35 million.  Today we announced a 23% increase in our regular quarterly cash dividend to $0.27 from $0.22 per share.  These actions underscore our continued confidence in Oceaneering's financial strength and future business prospects. 

"Looking beyond 2014, we believe that the oil and gas industry will increase its investment in deepwater projects.  Deepwater remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low finding and development costs.  With our existing assets and opportunities to add new assets, we are well positioned to supply a wide range of services and products required to support the safe deepwater efforts of our customers."

NYC-based PIRA Energy Group believes that Asian oil markets remain supported. In the U.S., stocks built.  In Japan, consumption tax increase depresses product demands. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asian Oil Markets Remain Supported

Oil prices should find increasing support moving forward as the worst of the spring crude stock building is almost behind us. Asian gasoline cracks should improve seasonally. Gasoil cracks should hold up with ongoing turnarounds and then higher demand, especially into 3Q.

Consumption Tax Increase Depresses Japanese Product Demands

Total commercial stocks rose 4.6 MMBbls due to a 4.9 MMBbl build in crude. Finished product stocks were modestly lower. Gasoil stocks drew for the eleventh straight week. All the major product demands fell back, as an increase in the consumption tax went into effect April 1st. That increase is likely to keep demands abnormally soft for the next couple of weeks and produce adverse demand comparisons to last April.

A Closer Look at Canadian Shale Liquids Potential

It is becoming increasingly likely that the next location of significant shale liquids growth will be Western Canada. A closer look at resource potential suggests that production volumes will substantially grow. There will be obstacles including cost pressures, water management, takeaway infrastructure limits and environmental concerns that will slow progress but none of these appear to be showstoppers.

Propane Stock Building Has Commenced

U.S. stock building occurred at a faster pace than last season, but propane inventory comparisons will remain far lower year-on-year. Propane exports will grow during the course of the year as new terminal capacity is added. Near term ethane usage is affected by a relatively high level of cracker downtime. The key development is the sharp escalation in spot international freight costs which is adversely impacting trade economics.

Ethanol Prices Plummet

U.S. ethanol prices tumbled the week ending April 4 as plant output increased sharply, enabling stocks to build for the second consecutive week. At the same time, prices had reached a high enough premium over gasoline that companies reduced the percentage of ethanol-blended fuel to the lowest level in about eight weeks.

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.