NYC-based PIRA Energy Group believes that cyclical strengthening is currently underway in the global economy with the U.S. in a better position to support global growth. In the U.S., stock excess modestly widens. In Japan, crude runs ease, but crude stocks draw. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
World Oil Market Forecast
Cyclical strengthening is currently underway in the global economy with the U.S. in a better position to support global growth. OPEC cannot rebalance oil markets because the surplus is too large. Even with PIRA's assumed substantial OPEC cuts at the upcoming November 27 meeting, supply will be over 1 MMB/D higher than demand in 2015. Oil markets will have to be rebalanced via price. The market will see greater contango but prices in the front of the market will inevitably be anchored by bullish medium term oil supply/demand balances.
U.S. Stock Excess Modestly Widens
This past week's inventory increase was slightly larger than the increase last year in the same week, widening the year-on-year inventory. Crude stocks still remain 2.1 million barrels below last year, middle distillate nearly 1 million barrels below, and gasoline 11.1 million barrels lower. Gasoline stocks are relatively low, but with resupply expected from higher runs and imports, gasoline has recently taken a drubbing. Not surprisingly, the one major product category showing a large surplus to last year's inventory is "other" products, which is mostly NGLs.
Japanese Crude Runs Ease, But Crude Stocks Draw
Crude runs eased, while crude imports declined sufficiently to draw crude stocks moderately. Finished product stocks resumed building with much of it being kerosene. Gasoline demand was modestly higher, and stocks posted a small draw. Gasoil demand was surprisingly weak, but lower yield tempered the stock build. Kerosene demand continued to run at seasonally low levels with higher yield, which boosted the stock build rate to a strong 132 MB/D. Refining margins remain soft with all the major product cracks, except for middle distillates (kero and gasoil) weakening.
The Sensitivity of Shale (and Other) Oil Production to Lower Price
We expect shale oil production to be relatively sensitive to a drop in oil prices, but the response will not occur immediately. A price lower than $80 on an LLS basis will reduce production, both due to the deterioration of the economics of the key shale plays as well as the reduction of cash flows and borrowing capability for the operators. However, the production impact during the first year will emerge slowly, as existing hedges, rig obligations and high-grading of drilling will initially temper the effect of lower prices. In the long-term, these impacts will grow substantially although lower activity levels should also eventually lead to lower costs, partially offsetting the price effect.
U.S. NGL Complex Spirals Lower
December Mont Belvieu propane futures continued to spiral lower, falling 5.4% to $0.86/gal the lowest price since July 2014. Ever increasing stocks and challenging export economics continue to complicate matters for the fuel/feedstock. Midcontinent propane markets were slightly better, only 3.4% lower, widening the Conway premium to 6.5¢/gal – the highest this season. Next week, falling crude prices will continue to drag on NGL prices while closed spot arbitrage economics will hinder exports to Europe and Asia.
U.S. Production Margins Improved After Declining for Eight Straight Weeks
The cash margins for U.S. ethanol manufacture rebounded the week ending October 17 as the market tightened. Ethanol was $1.78 per gallon in Chicago on Friday, up 21.9% from its $1.46 bottom on October 2.
U.S. Ethanol Stocks Fall to Seven-Week Low
U.S. ethanol inventories declined for three consecutive weeks, dropping to a seven-week low 17.9 million barrels. Ethanol production rebounded to 896 MB/D the week ending October 17, up from 885 MB/D during the preceding 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.
Express Energy Services ("Express" or the "Company"), a North American oilfield services company, has announced that funds managed by affiliates of Apollo Global Management, LLC (NYSE: APO) (together with its consolidated subsidiaries, "Apollo") and participating management have agreed to acquire the Company from its existing shareholders. Terms of the transaction were not disclosed.
Express, founded in 2000, is a premier provider of products and services to the petroleum and energy industries. Offering oilfield services in every major hydrocarbon basin in the United States, Express assists its customers with six service lines, including casing and tubular running and completion and production services, and a workforce of approximately 1,700 employees in more than 30 locations.
"Apollo is one of the largest and most successful private equity firms in the world and possesses the type of deep energy expertise that we believe will enhance the value of Express Energy Services," said Darron Anderson, chief executive officer, Express Energy Services. "We are proud Apollo has chosen Express as a platform for oilfield services and are thrilled to partner with them to further develop and grow our business. We expect this transaction will provide considerable strategic benefits to our underlying business along with our customers and employees."
"We look forward to our new partnership with Express Energy Services and its outstanding management team and employees. We have been extremely impressed with the Company's culture of excellence, track record of operational success and strong commitment to training, safety and service quality," said Michael Jupiter, partner, Apollo Global Management. "We believe we are well positioned to help Express achieve its long-term growth strategies for its existing and future service line offerings."
Express will continue to be headquartered in Houston, Texas.
NYC-based PIRA Energy Group believes that falling crude prices and the resulting pressure on margins seen by producers may directionally provide less headroom for regulators to add additional costs to production via new or intrusive regulations. In the U.S., large stock changes: crude build and product draw. In Japan, typhoons throttle back crude runs, imports, and tempers demand. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
Fracking Policy Monitor
Falling crude prices and the resulting pressure on margins seen by producers may directionally provide less headroom for regulators to add additional costs to production via new or intrusive regulations. Federal regulations with potential impacts on fracking production are still expected from President Obama's Methane Strategy, though EPA has shown an inclination towards expanding voluntary efforts as well. A decision on whether and how to regulate is expected soon, with any regulations to follow by end-2016. On the state level, the ability of localities to ban fracking via zoning authority continues to be a hot issue.
Large U.S. Stock Changes: Crude Build, Product Draw
Oil prices have no near-term anchor. This past week saw the second largest weekly crude inventory build of the year which was 1.0 million barrels greater than the rather large product stock decline. Week-on-week product stocks fell as reported demand increased, product imports declined and crude runs dropped to the lowest level since Spring maintenance. The crude inventory deficit narrowed while gasoline's stock deficit increased. Distillate, kero-jet and residual fuel oil inventories are virtually identical to last year.
Japanese Typhoons Throttles Back Crude Runs, Imports, and Tempers Demand
Crude runs eased back due to turnarounds and typhoon related impacts. Crude imports eased and stocks drew slightly. Finished product stocks posted a modest build. Gasoline demand was lower despite the "Sports Day" holiday, which normally should lift demand, but the typhoon impact appears to have dominated. Gasoil demand was predictably lower, with higher yield, and stocks built modestly. Refining margins remain very soft with all the major product cracks weakening.
World LPG Export Volumes Soaring
Global seaborne trade of LPG soared to record levels in September with volumes approaching 7 million metric tons of LPG. Total Middle East exports in September were roughly 3.0 million metric tons in the high end of the range this year but not near July 2013 highs of some 3.5 million. US Exports for September were approximately 1.4 MM metric tons, nearly 50% of the total Middle East volumes. Increasing US exports are the main driver pushing global waterborne trade to record levels.
U.S. Ethanol and Biodiesel Prices Rise
After falling for six straight weeks, U.S. ethanol prices found support at the $1.46-$1.50 per gallon level and increased the week ending October 10.U.S. biodiesel assessments rose back above $3 per gallon last week, but most producers failed to cover cash manufacturing costs.
Ethanol Output and Inventories Decrease
U.S. ethanol production dropped to 885 MB/D the week ending October 10, erasing most of the gains from the preceding week and edging close to the six-month low 881 MB/D set two weeks earlier. Stocks were down 295 thousand barrels to a five-week low 18.4 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.
Singapore has traditionally been regarded as the clear leader in the construction of jack-up rigs, accounting for 55% of global deliveries between 2000 & 2010. However, in the past five years this position has faced increasing challenge from Chinese yards willing to offer highly attractive financing in order to secure market share – China currently accounts for 47% of the orderbook compared to Singapore's 33%. With this trend expected to continue, Singaporean yards have been aggressively pursuing higher value EPC markets signalled by Keppel's "CAN DO" drillship project, which when completed will be arguably the most technically advanced asset of its kind. Both Keppel and Sembcorp have also made major investment in their FLNG capability.
We do not expect Singapore to completely retreat from the Jack-up market. However, this focus on frontier EPC segments is both a clear reaction to the inevitable rise of China (in what was considered "their" business) and a warning shot to South Korean dominance in both drillships and FLNG. The South Korean big three of Samsung, Hyundai & DSME have all struggled in recent years with balancing their traditional efficiency in light of a tighter price environment (see the earlier DW Monday on Capex Compression) and a shift away from heavy construction seems likely as suggested by SHI's recently announced merger with Samsung Engineering.
The offshore EPC landscape is undoubtedly going through some regional realignment.
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