PIRA Energy Group, a leader in global energy market analysis, announced today the official launch of its new website and complimentary subscription service called PIRA PERSPECTIVES. PERSPECTIVES combines a high-level, weekly overview of PIRA’s energy intelligence with a monthly video series featuring its top analysts. This complimentary subscription is now available online at: http://www.pira.com/insights.

Subscribers can access updates and video, spanning across 12 different commodity areas. PIRA’s fundamentals-based, integrated view of the market helps analysts to keep a pulse on the market. It will also serve media professionals who often request information from PIRA that can be shared with the general public. PIRA’s complete information services and data tools are reserved for its paid subscribers to its DIMENSIONS platform. Trials to that platform can also be requested through the new website at http://www.pira.com/dimensions.

“PERSPECTIVES is a significant step forward for PIRA as we start to share some of our market-leading energy intelligence with the outside world” said CEO Gemma Postlethwaite. “The energy industry has long regarded PIRA as being a valued partner in analyzing the markets. PERSPECTIVES allows energy professionals to get closer to PIRA’s market-leading intelligence.”

The launch of PERSPECTIVES is part of an ongoing, focused effort to deliver the deep expertise of PIRA’s leading team of experts in ways that best align with the needs of today’s energy professionals. “Our brand stands for delivering the total view of the energy market and now analysts can see what we mean by that every week, right in their inbox” said Jeff Mancini, PIRA’s Chief Marketing Officer. “PERSPECTIVES online is just the beginning. We are committed to sharing more of our deep industry knowledge through studies and live events as well.”

For more information about PIRA PERSPECTIVES, click here.

After almost eight decades of Pemex monopoly, the Mexican energy sector is entering a new era of foreign oil company participation. A decade of steady decline in domestic oil & gas production has incentivized the Mexican government to lift the regulations and allow international companies to start developing offshore projects in Mexican waters. The government is keen to attract private investors to its energy sector with the hope of kick starting its struggling economy.

Over the last decade Mexico’s oil production decreased at a compound annual growth rate (CAGR) of -3.3%. This was driven by a drop in drilling activity, which declined at a CAGR of -2.7% 2005-2014. In spite of the country’s offshore potential, DW continues to take a conservative view on the country’s future oil production. Whilst the drilling activity is expected to soar over the balance of the decade at a CAGR of 13.3% (as a function of Pemex offshore projects that are expected to come on stream in next years) Mexican production is expected to grow only at a modest CAGR of 0.3% through to 2020. Operating fields are mature and additional drilling activity is only expected to offset the loss in production.

Despite the low oil price environment, the government has remained committed to auctioning its offshore blocks, keen to drive international investment. Recent tenders failed to meet government expectations; out of 14 shallow water exploration blocks only 2 were awarded to a consortium of Sierra Oil & Gas, Talos Energy and Premier Oil, leaving the pre-qualified majors without new acreage despite previous recorded successes and infrastructure already in place.

Following a disappointing result in the first upstream tender for shallow water exploration, lessons have been learned. Raising the domestic flagging oil output is President Peña Nieto’s key economic target. The Mexican government will need to revise its expectations if it is to see more success for its subsequent auctions. Although it has been reported that the contract terms and requirements for future tenders have been improved, it remains to be seen if those are attractive enough for operators to splash their exploration budgets in Mexican offshore projects.

www.douglas-westwood.com

NYC-based PIRA Energy Group reports overall commercial stocks built but the excess modestly narrowed. In Japan, crude runs declined due to typhoons and crude stocks drew on low imports. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

U.S. Stocks Build but Excess Modestly Narrows

Overall commercial stocks built 2.9 million barrels, 2.3 million barrels less than last year’s increase for the same week, narrowing the year-on-year stock excess to a still hefty 144.4 million barrels, or 12.8%. The crude stock surplus to last year widened to 93 million barrels, or 25%. Cushing crude stocks are 39 million barrels over last year, a new high for the year.

Japanese Crude Runs Decline Due to Typhoons, Crude Stocks Draw on Low Imports

Crude runs declined due to the impacts from a typhoon, which also kept crude imports very low such that crude stocks posted a large draw. Finished product stocks rose due to a build in jet-kero and fuel oil. Gasoline demand was higher from holiday impacts and stocks drew. Gasoil demand was also higher, producing a modest stock draw. The indicative refining margin remained good and was little changed.

Gas Tanker Rates Falling

Spot VLGC tanker rates look to have peaked with the benchmark Ras Tanura to Chiba, Japan rate falling $20 to $120/MT after reaching the year’s highest levels a week ago. LPG length in the AG has led to suppliers leaning on term purchasers to lift contracted volumes, which squeezed an already extended gas tanker market. Supply in Asia, set to benefit from additional AG deliveries, has reacted to crimp spot arbs from the U.S. by the most in a year – which may very well lead to an increase in spot VLGC availabilities – and thus the peak may now be in for tanker rates. With new build tanker deliveries accelerating from here thru next year – rates may not return to these levels for some time.

Ethanol Prices Decline

The week ending July 17, U.S. ethanol prices tumbled to the lowest level in almost a month, tracking the decline in corn and oil values. The six-week low output of ethanol-blended gasoline during the preceding week was also bearish.

U.S. Ethanol Output Lower

Ethanol production fell for the second consecutive week as some plants have been operating at lower rates due to poor margins. Inventories dropped by 181 thousand barrels to 19.6 million barrels, though PADD III was the only region where stocks decreased.

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.

After 10 years of diplomatic negotiation, the UN P5+1 countries (the US, the UK, France, China, Russia and Germany) at last reached an agreement to unwind economic sanctions on Iran in return for significant international control and surveillance over its nuclear activities. The long-awaited deal will revive foreign investment in Iran, as Western IOCs renew pre-sanction projects. Brent dropped $1.15 to $56.70/bbl on the back of the announcement, with markets fearing a worsening of the global supply glut.

Iran holds the world’s fourth-largest oil reserves and second-largest gas reserves, whilst being the second largest OPEC producer after Saudi Arabia. In 2014 total Iranian production, heavily driven by gas and condensate production from the giant South Pars field, amounted to 6.7 mboe/d. During the sanction period, however, Iran had limited access to technology from the West and complex LNG export terminal projects stalled. Vast capital inflows will now be required to develop under-invested Iranian fields, however, due to the large reserves base, DW believes appetite to invest in Iran will be strong amongst major operators.

Whilst no sanctions will be lifted before December, DW believes that Iranian liquids production will rise to a 2015 average of 3.5mb/d, based on pre-sanction production levels and available oil currently stored in storage tankers off Iran. Further production gains are expected as additional development phases of South Pars come onstream, while the removal of sanctions will clear supply bottle necks out of the Persian Gulf. IOC investment in the country’s huge potential will further boost production as sanctions are rolled back, though any new projects will see a lag of several years from lease acquisition to production phases.

Global oil prices have been weighed down in recent months by resilient US production, record Saudi output, continued weakness on the demand side, and the Grexit prospect. Whilst commodity prices are unlikely to be aided by an opening of Iranian taps, the true tidal wave of Persian crude could be later rather than sooner.

www.douglas-westwood.com

NYC-based PIRA Energy Group believes that crude prices are setting the stage for a significant bounce from the recent downturn. In the U.S., the stock excess widens despite strong demand growth. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asia Pacific Oil Market Forecast

Crude prices are setting the stage for a significant bounce from the recent downturn. Product demand growth for the remainder of the year remains constructive, and products will get a lift from fall maintenance but the market will remain long product, which will make recovery in Asian refinery margins slow to materialize. Most noted will be a rotation out of gasoline crack strength, which has been leading and holding up the product barrel. Gasoil demand picks up the remainder of the year, but the overall uplift for gasoil balances and cracks will be notably muted due to rising supplies from new refinery startups, and high stock positions, particularly in Europe, but also in Asia.

U.S. Stock Excess Widens Despite Strong Demand Growth

Crude stocks drew this past week but this was more than offset by a product stock build, leaving stocks at a new record high and 157 million barrels higher than last year. Some 71% of the excess is in crude oil and distillate. Gasoline stocks are just 1.3% higher than last year despite historic refinery runs which is a tribute to strong demand growth.

European Oil Market Outlook

Brent crude prices lost ground over the last few weeks and are now under $50/Bbl for prompt cargos versus $60-65/Bbl in May and June. This decline has been led by the back of the market and is the result of a dramatic swing in market sentiment. However, PIRA expects prices to ultimately improve as physical balances tighten – more next year than in the remainder of 2015.

Spot U.S. Ethylene Prices Routed

Spot U.S. ethylene prices collapsed last week on worrying economic headwinds, lower feedstock prices, and high cracker utilization rates. Spot ethylene lost 7¢/lb or nearly 25% to settle at cycle lows of just 22.75¢/lb for September delivery. U.S. steam cracking margins plummeted with ethylene prices. LPG cracks, for both propane and butane dropped over 20% to near 26¢/lb ethylene. Ethane margins dropped to just 19¢, three cents better than natural gasoline cracks per PIRA calculations.

Medium Term Marked Down, Longer Term Unchanged

Recent upward revisions to the medium term supply outlook have caused us to slow the recovery in price over the next several years in our Reference case crude oil price outlook. However, post-2020, our balances still suggest a need for growing volumes of higher cost supply since US shale production is unlikely to maintain pace with global oil demand growth.

U.S. Ethanol Prices and Margins Fall

Ethanol prices resumed their descent the week ending August 7, pressured by plummeting oil values and a flood of imports from Brazil. After improving the two prior weeks, manufacturing margins also decreased.

U.S. Output Up; Inventories Down

Ethanol output increased to 965 MB/D, up from an eleven-week low 961 MB/D the week ending August 7. Stocks declined by 710 thousand barrels to 18.5 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.

NYC-based PIRA Energy Group believes that so far market sentiment has deteriorated more than oil balances. In the U.S., commercial stocks flat on the week while EIA revises down U.S. crude output. In Japan, crude runs recovered and stocks built. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast

There are more risks to the forecast lift in global economic growth in second half 2015. So far market sentiment has deteriorated more than oil balances. The back of the market has led prices lower as speculators are no longer convinced higher oil prices are required to balance future oil supply and demand. PIRA disagrees with this view, but a “show me” mindset regarding tightening balances will keep prices lower than forecast earlier.

Latin American Oil Market Report

Increased United States/Canada crude production has significantly reduced U.S. imports of Latin American crudes over the last few years. More Latin American crude moved to Asia, mainly India and China. Mexico has proposed an exchange of up to 100 MB/D Mexican heavy crude for U.S. light crude that if approved would help to reduce the light crude overhang in the U.S. and enhance Mexican gasoline/diesel production and thus reduce their product imports. Latin American gasoline/diesel product imports will rise even with new refinery start-ups in Brazil and Colombia, and the U.S. will supply the vast majority. Near term planned/unplanned refinery outages in Venezuela and Mexico along with seasonal demand impacts are adding to Atlantic Basin product strength in 3Q15. PIRA’s outlook is for generally weaker Atlantic Basin gasoline/diesel cracks over the remainder of the year.

Commercial Stocks Flat on the Week While EIA Revises Down U.S. Crude Output

A 4.2 million barrel commercial crude stock draw offset a similar sized product inventory build leaving stocks virtually flat on the week. The stock excess to last year stayed roughly the same at 145 million barrels. Noteworthy is that the EIA revised down its Lower-48 crude production by 151 MB/D in this week’s report. This is an indication that the upcoming May 2015 Petroleum Supply Monthly will most likely show downward revisions to crude production for some months of 2015. May 2015 U.S. total crude production should come in significantly lower than the 9.65 MMB/D shown in the most recent STEO forecast. 

Japanese Crude Runs Recover and Stocks Build

Crude runs and imports rebounded following the typhoons, which had resulted in operational and berthing disruptions. Crude stocks surged, while finished product stocks rose only slightly. Gasoline and gasoil stocks were marginally lower, while kerosene stocks continued building, though at a slower rate. The indicative refining margin has come well off its June peak, though it is in the upper half of its statistical range.

This Time is Different

It is PIRA’s belief that crude oil and product prices are set simultaneously in both the physical and paper markets. Commercial entities that have physical positions, which they hedge in the futures markets, are the connective tissue between these two markets. Post 2003, fears that the world would be running out of crude led speculators to increase their paper length, which raised deferred futures prices enough to allow physical players to find and develop higher cost crude. What is different this time is the role of prime mover has shifted from speculators to commercials. This time commercials have become increasingly short, encouraging through lower prices speculators to enter the long side of the market.

Petroleum Refining Remains an Important Market for Natural Gas

The EIA’s latest annual report of refinery fuel use for 2014 does not contain many surprises regarding natural gas use in the refining sector. Direct fuel use of natural gas averaged a little less than 2.5 BCF/Day, and natural gas use to produce hydrogen in refineries averaged a little more than 0.5 BCF/Day. This represented 14% of industrial sector natural gas use, and 4% of total U.S. natural gas consumption. Natural gas use per barrel of crude run seems to be related to the prevailing API in each PADD. The national average natural gas use of 0.2 MMBTU per barrel of crude run implies a 20¢ per barrel margin impact, for every $1.00/MMBTU change in the price of purchased natural gas.

Freight Market Outlook

Tanker markets entered the second half of 2015 on a high note, but they are due for correction as a number of temporary elements of support unwind. The Iranian nuclear agreement has the potential to significantly alter both the crude and tanker markets, but this will take time to unfold. Incremental Iranian crude exports estimated at 500 MB/D by the end of 2016 are not expected to hit the market until the second quarter of next year. Perhaps of more importance to shippers and tanker operators is the potential for the marginalized Iranian tanker fleet (including 37 VLCCs) to return to active service in 2016 adding to the already accelerating capacity growth.

Asian Ethylene Prices Drop in July

Ethylene prices in China and Southeast Asia fell over 20% in July. Exports from the mainland increased as poly plants slowed on greater uncertainty in the local economy. Chinese exports are facing muted demand in the north where prices are falling in tandem amid rising inventories. Supplies are likely to continue rising, and prices falling, as long as ethylene production margins remain robust.

Ethanol Inventories Decline

U.S. ethanol production has declined for three consecutive weeks, with last week's output dropping to a ten-week low 965 MB/D. After two straight weeks of falling stocks, inventories reversed course and built by 89 thousand barrels to 19.6 million barrels.

Ethanol Prices and Margins Bottom

U.S. ethanol prices were volatile in July, rising early in the month but then falling sharply, tracking corn’s reversal. Ethanol manufacturing margins bottomed mid-month after declining for nine consecutive 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.

The subsea sector is highly consolidated with just five players servicing the $12billion annual requirements of the global E&P community. The two largest, FMC and OneSubsea, account for approximately two-thirds of the market but despite this, have shown no signs of resting on their laurels, forging strategic partnerships to reshape and redefine the commercial landscape. This has become increasingly critical as projects have grown in scale and complexity.

Recent years have seen a shift in focus from mechanical tree designs towards value added instrumentation, monitoring and processing technologies. The joint venture between Cameron and Schlumberger to form OneSubsea in 2013 is a deliberate attempt to unite the former’s subsea skill with the latter’s downhole and processing expertise. Likewise, the recent partnership between FMC and Technip to form Forsys Subsea, combines subsea production, processing and installation capabilities, minimising both supply chain and technological interfaces for the end user.

Ultimately, E&P companies have been gradually moving from a ‘pick and choose’ approach, to procuring systems from a single vendor. DW data suggests that 15 years ago, nearly a fifth of subsea wells installed had different manufacturers for the trees and controls. In 2015 it is expected that over 95% of subsea trees installed will have wellheads and controls from the same manufacturer. This trend is set to develop further with an appetite for standardisation of subsea equipment that has been driven by cost pressures, lower oil prices and the subsequent need to deliver projects on-budget, on-time.

NYC-based PIRA Energy Group reports that North American crude differentials were mixed in June, with little change in outright prices. In the U.S., both crude and product stocks posted a build. In Japan, crude runs jumped, crude stocks built, yet finished products drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

North American Midcontinent Oil Forecast

North American crude differentials were mixed in June, with little change in outright prices. Rising pipeline takeaway capacity and shrinking production generally strengthened differentials in the Rockies, Permian Basin and Cushing area. At the same time, an end to wildfires and oil sands upgrader maintenance brought Canadian differentials back down from very strong springtime levels.

Another Large U.S. Stock Build

Both crude and product stocks posted a build last week, and weekly commercial stocks stand at 145 million barrels, or 13% above year-ago levels. Some of this excess is for infrastructure expansion. While moderating, demand growth remains strong, with total product demand growth estimated to be up 1.06 MMB/D versus last year, over the last four weeks. Our construct domestic crude supply – reported production plus balance item – has moved up in recent weeks, after seemingly peaking a few months ago.

Japanese Crude Runs Jump, Crude Stocks Build, Yet Finished Products Draw

Crude runs posted a significant rise as maintenance continues to wind down and unplanned outages began to restart. Crude imports increased and stocks built. Finished product stocks drew, due to lower jet-kero, gasoline, and fuel oil stocks more than offsetting builds in naphtha and gasoil. The indicative refining margin remained good, though it was somewhat softer on the week as all the major cracks again gave ground.

Strong Air Traffic Growth Means Robust Jet Fuel Demand

The International Air Transport Association (IATA) recently released their data on global air travel through May. On a global basis, Revenue Passenger Kilometers (RPKs) grew 6.3% for the year through May, when compared with the same period in 2014. Available Seat Kilometers (ASKs) are a better indication of jet fuel demand by eliminating the impact of changing load factors, and this measure of global air travel was up 5.9%. This strong growth in air travel indicates robust demand for jet fuel. PIRA's World Energy Demand model shows jet fuel consumption growing 3.6% in 2015, followed by a gain of 3.1% in 2016, with volumetric growth averaging more than 190 MB/D per year.

Smaller-Than-Expected 2Q Stock Build in Latest 3 Major OECD Data

Preliminary data indicate commercial onshore inventories in the three major OECD markets - - United States, Europe and Japan - - built 48 million barrels (525 MB/D) in the second quarter with crude stocks flat and the entire build essentially occurring outside of the major products. The overall stock increase is less than last year’s 66 million barrel stock build (725 MB/D) in the second quarter. The stock data are consistent with PIRA’s just released World Oil Market Forecast (June 30) and PIRA’s estimate of 260 million barrels of surplus global commercial inventory accumulated over the last four quarters, a far smaller figure than market analysts were generally expecting. Gasoline stocks are especially low, after adjusting both for higher 3Q demand in these markets and export demand.

U.S. LPG Prices Stand Strong in Flat Price Rout

The U.S. NGL complex outperformed the broader energy complex by a wide margin. July propane at Mt Belvieu was only 1¢ lower, settling near 43.5¢/gal Friday. Propane prices increased from below 30% of WTI to near 35% in this week’s price action. Contango in the front three months of the Mt Belvieu forward curve narrowed to the tightest levels in over a month – just under 3.5¢/gal, a remarkable reversal from nearly 8¢ prior to June expiry. Butane at the market center managed to increase 0.5% on the week to settle near 58.2¢/gal.

U.S. Ethanol Prices Jump

Ethanol prices soared the week ending July 3, following a spike in corn values. Lower output and inventories, as well as higher production of ethanol-blended gasoline, provided support.

U.S. Output and Inventories Increase

U.S. ethanol production climbed to 987 MB/D from a six-week low 968 MB/D the week ending July 3, continuing the saw-toothed pattern that began in late May. Stocks built by 309 thousand barrels to 19.8 million, reversing the nearly identical draw that occurred one week earlier.

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.

Today’s oil and gas environment has been impacted by a myriad of issues including restrained capital spending, curtailed investment and employment cuts for struggling companies across the supply chain. Recovery from current market conditions is expected to be slow, with oil prices likely not to return to pre-crash levels in the near term. However, such conditions are likely to prove beneficial for those private equity firms and strategic investors prepared to take a long-term view of the current downturn.

Constricted capital expenditure is directing Operator attention to maximizing efficiencies of their existing assets. Field redevelopment and production optimization of brownfield assets offers a comparatively low cost option to increase production. For example, Douglas-Westwood research shows that global offshore maintenance, modifications & operations (MMO) spend will decline by at least 12% in 2015 – driven by a combination of delayed projects and pricing. However, the underlying long-term trends remain favorable for brownfield developments – the need to ensure continued production levels holds strong and increased levels of spend are expected to return by 2017. This is recently illustrated by BP’s $1 billion investment into the Eastern Trough Area Project (ETAP). Further brownfield investment will be essential if the industry is to create a competitive cost base and sustain production.

Whilst not subject to the same magnitude of orderbook reduction as Capex-focussed businesses, service firms that cater to ongoing operations have not been immune to implications stemming from low oil price. Virtually all have initiated cost reduction processes to cater for reduced activity and margin pressure. This includes the implementation of downsizing measures.

Our recent discussions with the investment community show an increased focus on brownfield-leveraged companies, for whom margin levels are typically lower, but are not subject to the same risk of backlog collapse. The growing trend towards improving efficiency in the current oil price environment will benefit brownfield focussed firms in the years ahead. Furthermore, long-term investment in the MMO sector may also provide an upside in transferable skills to a potential decommissioning market; should this occur before oil prices rebound to field-prolonging levels.

MMO providers offer an improved investment case, particularly as we settle in for what could be an extended period of low oil price.

China’s stock markets have been suffering considerable volatility, sending the central government scrambling in an attempt to pick up the pieces to support the crashing market. Although Chinese economic growth slowed during the past year and local companies’ profits proved unsubstantial, investment in Chinese stocks remained high, creating a bubble which popped on June 12 with the Shanghai index losing a third of its value. Additional signs of market weakness have spread throughout the Chinese manufacturing industry as sector jobs are cut at a rate unobserved since February 2009. Likewise, the effects of slower than anticipated Chinese growth are already being felt by the energy industry, as China remains the world’s largest energy consumer.

China’s weakening economic prospects and stock market plunge have led crude oil futures to fall to uncommonly low levels in early July as evidence of weakening Chinese energy demand growth mounts. Despite significant reductions in Capex, many US producers are still reporting high crude output levels as operators develop and produce formerly drilled wells, although recent EIA data show declining output collectively in the seven major unconventional basins.

Supply growth is now focused on OPEC where crude production this past month increased to 31.7mbbl/d according to the IEA. Led by growth in output from Iraq, UAE and Saudi Arabia, OPEC is now producing an additional 1.6mbbl/d compared with January levels, approximately 85% of the current supply overhang. Iraq’s crude exports reached uncommonly high levels in July while a record outpour of UAE crude hit the market. Moreover, Saudi Arabia suggested further increasing production levels to retain market share.

As oversupply in the crude market continues, a sudden reduction in Chinese energy consumption growth may continue to apply downward pressure to crude prices. OPEC, however, seem more bullish, announcing last week that “signs of a more balanced market in 2016 may provide much desired stability to the oil market in the longer-term, a prerequisite for the continuity of timely and adequate investments.”

Global upstream oil and gas deal activity, including capital markets and Mergers and Acquisitions (M&A), totaled $19.3 billion from 125 transactions in June 2015, marking a $4.3 billion decrease in value from the $23.6 billion across 119 deals posted in May 2015, says research and consulting firm GlobalData.

According to the company’s latest monthly upstream deals review*, upstream M&A accounted for $8.8 billion from 18 transaction announcements in June 2015. While this was a significant drop from $11.7 billion in May 2015, the number of M&A transaction announcements increased from 13 in the previous month.

Matthew Jurecky, GlobalData’s Head of Oil & Gas Research and Consulting, states: “Capital raising continues at the healthy clip seen in 2015, driven by debt offerings in the US almost a year from prices collapsing. Companies continue to seek financial flexibility and restructure short- and reserves-based capital to avoid bankruptcy.”

GlobalData’s report says that Europe, the Middle East and Africa (EMEA) led the global acquisitions market in terms of value in June 2015, with a 39% regional share totaling $4 billion. This came from 18 deals, of which 14, with a combined value of $4 billion, were announced, and four, with an undisclosed value, were completed. The majority of M&A activity in EMEA was centered on offshore assets, which delivered the greatest share of deal volume with 10 deals in June 2015.

Jurecky comments: “M&A momentum continued in June with Emirates National Oil Company proposing a buy-out of Dragon Oil, BP buying a stake in one of Rosneft’s Siberian fields, and Wintershall selling a package of North Sea assets to Tellus Petroleum (Tellus).”

Other significant transaction announcements include a proposed $2.3 billion merger between Vedanta and Cairn India, as well as an acquisition of royalties from Cenovus for $2.67 billion by the Ontario Teachers' Pension Plan.

Jurecky concludes: “Market conditions will continue to fuel a desire for M&A. After a failed attempt years ago, Emirates National Oil Company is another case of a company taking advantage of depressed asset values to consolidate ownership in one of its positions, Dragon Oil.

“On the other hand, Wintershall is disposing of lower growth assets, which for Tellus is an opening into a stable and dependable production base.”

*Monthly Upstream Deals Review – June 2015

As strained negotiations between the Greek government and European financial ministers enter the end-game, the impact on energy markets remains uncertain. Setting aside both the deeply troubling social impact for Greek citizens and other major forces – from Chinese equities to an Iranian nuclear deal – the threat of Greece leaving the Euro is already dampening crude prices. The concern for oil markets centers around two factors: the consequences for economic stability and growth in Europe, and strengthening of the US dollar.

Greece herself consumes less than 0.4% of global crude, produces fewer than 9,000 barrels per day and had an economy of $240bn last year – around 0.3% of the global total. An exit from the Euro, however, threatens the breakup of the Eurozone itself, a major global economy and consumer of 9.7 million barrels of oil per day. Should Greece ‘walk away’ from her debts, exposure to the debt in other member states, coupled with premiums for borrowing (particularly in Southern Europe) could be expected to usher in another period of recession. Estimates from the IMF suggest a contraction of between 2% and 5% is possible. While this picture remains highly uncertain, historical linkage of oil consumption and GDP growth would imply a potential reduction of 360 kboe/d per year in consumption. Tiny indeed, but in an over-supplied market, every portion of demand is important.

Ever-deeper uncertainty within Eurozone economies however, is likely to increase the flight of capital to dollar-based equities, The Euro has already fallen 18% against the dollar in the past 12 months and a Greek exit would likely dampen this significantly as investors look nervously at other debt-laden Euro members. A strong dollar weakens international oil demand as the commodity, traded in USD, is more expensive on a relative basis.

If ‘Grexit’ becomes a reality it will serve to further dampen the recovery in oil price – It will be interesting to see the impact of the weekend’s ‘In-Out’ meetings in Athens and Brussels on oil prices in the week ahead.

NYC-based PIRA Energy Group reports that crude prices plunged in July, with the WTI price averaging just over $50/Bbl. In the U.S., stocks are flat but excess widens. In Japan, crude runs moved higher, with still higher crude stocks. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

North American Midcontinent Oil Forecast

Crude prices plunged in July, with the WTI price averaging just over $50/Bbl – down $9/Bbl from June. Canadian prices fell even more, some $12-15/Bbl. In early August, prices were continuing to slide, with WTI falling to the mid-$40s. Heavy Canadian grades have fallen below $30/Bbl, implying bitumen values approaching $20/Bbl.

U.S. Stocks Flat but Excess Widens

This past week's crude stock draw offset a product build leaving inventories flat for the week. Year-on-year the stock excess widened to 153 million barrels, up 8 million barrels on the week. The largest portion and bulk of the excess is in crude while the smallest excess is in gasoline.

Japanese Crude Runs Move Higher, with Still Higher Crude Stocks

Crude runs surged as maintenance wound down and storm impacts faded. Crude imports remained high and stocks built despite the run increase. Finished product stocks drew slightly, mostly on lower naphtha inventory and a slight draw on gasoline. Finished product demands were, on balance, higher. The indicative refining margin has come well off its June peak and continues to soften.

Aramco Differential Adjustments for September — Clearly Not Incentivizing Liftings

Saudi Arabia's formula prices for September were just released. The adjustments indicate no effort to incentivize increased liftings, even though there will be more avails as summer domestic crude burn begins to ease. Differentials to Asia were raised, Europe cut, and the U.S. were raised for the lightest and heavies grades. The Asian increase was against a backdrop of weaker refining margins and an eroding Saudi advantage against competing African crude for Asian refiners.

Asian LPG Prices Plumb New Lows

Propane futures in the Far East tumbled to $406/MT, the lowest price since March 2009. Saudi CP futures, instruments designed to hedge and speculate on the future direction of contract prices set by Aramco, fell to $326/MT – the lowest level since contract inception in Jan 2009.

Ethanol Prices and Margins Increase

Most U.S. ethanol prices managed small gains the week ending July 31 as production hit a ten-week low. Manufacturing margins improved for the second straight week because of lower corn costs.

Ethanol Output Reaches 11 Week Low

The U.S. ethanol industry reached several extremes the week ending July 31, with ethanol stocks dropping to a 2015-low and ethanol-blended gasoline production climbing to a record high.

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.

Adjusted 1st Half 2015 revenues increased 13.1% to €759 million at current rates (-1.7% at constant rates), which demonstrates good operational resilience in a very challenging market.

First Half 2015 adjusted revenues reached a company record of €758.8 million, confirming BOURBON’s position as a world leader in the OSV market.

Aside from the impact of a stronger US dollar on revenues, activity remained robust, despite adverse market conditions, on the back of a:

• 2.6% increase in the fleet size
• 3.4 point decrease in the average utilization rate
• 2.6% decrease in the average daily rate (in US$)

Compared with the second semester of 2014, adjusted Revenues decreased by 6.8% at constant rates Compared with the preceding quarter, adjusted revenues decreased 2.2%, reflecting the additional impact of average daily rate renegotiations and further stacking of vessels.

"The first half of 2015 was highlighted by a continued slowdown in activity in most regions and negotiations with clients on commercial terms. Throughout this difficult period, BOURBON has demonstrated resilience, evidenced by the revenue progression, thanks to our strategy of operating a safe, modern and efficient fleet", says Christian Lefèvre, Chief Executive Officer of BOURBON. "While the duration of this downturn is uncertain, BOURBON is constantly adapting to the market and is unwavering in its focus on excellence in service execution and reducing its costs. This focus will not only improve the group’s resilience in the current cycle but will make it even stronger going forward."

(a) Adjusted data:
The adjusted financial information is presented by Activity and by Segment based on the internal reporting system and shows internal segment information used by the principal operating decision maker to manage and measure the performance of BOURBON (IFRS 8). As of January 1, 2015, the internal reporting (and thus the adjusted financial information) records the performance of operational joint ventures on which the group has joint control using the full integration method. Adjusted comparative figures are restated accordingly.

NYC-based PIRA Energy Group believes that pessimism about oil prices because of the Iran nuclear deal and economic concern about China and Europe are overdone. In the U.S., the stock excess modestly widens. In Japan, crude runs continue to rise while product stocks rise on lower demand. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

European Oil Market Forecast

Brent crude prices lost ground over the last few weeks with bearish news/sentiment leading to a selloff of non-commercial (financial) net length in oil. However, pessimism about oil prices because of the Iran nuclear deal and economic concern about China and Europe are overblown. Under the Iranian nuclear agreement, incremental Iranian oil will not likely hit the market until the second quarter 2016. The ECB and Chinese authorities have enough levers to pull to maintain economic growth momentum, and there has been enough stimulus injected into the financial system to provide uplift to global growth in second half 2015. Near-term crude oil fundamentals have been tightening with high refinery runs this summer and sequentially flat/declining U.S. crude production. With crude stock declines, prompt prices have strengthened as expected. Gasoline cracks are very strong and should remain healthy for the next few weeks at least but will continue to decline from their seasonal peak earlier this month. For middle distillates, with high refinery production in the Atlantic Basin and new distillate-oriented refineries ramping up in the Middle East, stocks will build. Diesel cracks will continue to erode over the next one to two months before seeing some seasonal recovery. Recent European refinery margin strength, the best in many years, will fall below last year’s levels by 4Q15.

U.S. Stock Excess Modestly Widens

This past week’s 2.8 million barrel inventory increase was 1.6 million barrels larger than the build last year for the same week, slightly widening the year-on-year inventory excess to almost 147 million barrels, or 13%. The product excess narrowed by 1.6 million barrels, but the crude excess widened by 3.2 million barrels despite this past week’s substantial crude inventory decline.

Japan Crude Runs Continue to Rise, Post-Turnarounds, While Product Stocks Rise on Lower Demand

Crude runs posted a second straight significant rise as maintenance continues to wind down and unplanned outages have restarted. Crude imports fell back and crude stocks posted a 3 MMBbls draw. Finished product stocks built by a slightly lesser amount, with gasoline, gasoil, and kero demands falling and their stock levels rising. The indicative refining margin remained good and little changed. Stronger gasoline cracks offset declines in the other major cracks.

Fracking Policy Monitor

EPA's study thus far did not find evidence that fracking “led to widespread, systemic impacts on drinking water resources in the United States.” A judge in Wyoming has temporarily put a halt to the BLM’s rules for fracking on federal lands. Texas and Oklahoma passed laws that would prohibit local bans on fracking. Also in Oklahoma, a state Supreme Court ruling makes it easier for it to sue for damages resulting from earthquakes.

U.S. LPG Prices Outperform

Mont Belvieu LPG prices stood strong for a second weak despite sharply lower broader energy market pricing. August propane futures at the market center were mostly unchanged on the weak despite sharply lower crude oil, thus propane’s ratio to WTI strengthened yet again, to near 36% of US benchmark oil. Augy butane at MTB fell a fraction of a percent to settle just under 58¢/gal. Prompt ethane prices gained 1% with stronger natural gas prices.

Ethanol Manufacturing Margins Declined for the Eight Straight Week

Most U.S. ethanol prices rose slightly the week ending July 10, supported by higher corn costs. Manufacturing margins in Chicago have decreased for eight straight weeks, however, as recent increases in raw material costs could not be fully passed through.

U.S. Production of Ethanol-Blended Gasoline Decreases

Ethanol-blended gasoline production declined sharply to a six-week low 8,837 MB/D the week ending July 10 as total gasoline output dropped and ethanol made up a smaller percentage of the total pool. Ethanol output fell slightly to 984 MB/D, down 3 MB/D from the previous week, but up 41 MB/D year-on-year.

Incremental Iranian Oil Now Expected in 2Q16

PIRA updates its view on the return of Iranian oil given the timeframe laid out in the nuclear accord finalized on July 14. We now believe incremental Iranian oil will hit the market in the second quarter of 2016, likely April or May. Once sanctions are lifted, we expect Iranian crude production to rise rapidly, from 3.0 MMB/D currently to full capacity of 3.5 MMB/D by the end of 2016. Our forecast for 2016 Iranian production is close to PIRA's June Reference Case, although first half production is slightly lower and second half production slightly higher.

Finalized Nuclear Deal Confirms Incremental Oil Not Likely Until 2016

The final nuclear deal reached by Iran and the P5+1 is in line with PIRA's expectations that incremental Iranian oil will not hit the market until sometime in 2016. The deal is to be adopted within 90 days, perhaps sooner, but implementation is not likely to occur in less than four to six months. Sanctions relief is dependent upon IAEA verification that Iran has implemented specific nuclear-related measures, which will take time to establish, verify, and report. There is also still potential for delays or slow movement during the process. For now, PIRA assumes Iranian oil exports will increase by 300 MB/D in the first half of 2016. Increases are expected to slow thereafter, and we expect Iran to reach full crude productive capacity of 3.5 MMB/D in 2017.

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.

NYC-based PIRA Energy Group believes that crude stock draws have already begun and will pick up momentum in the third quarter. In the U.S., crude and products stocks showed builds. In Japan, crude runs fell marginally and imports dropped back such that crude stocks corrected lower. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast

Wage gains in developed world to drive faster second half global economic growth with Greece risks muted by potential aggressive ECB/Fed action if needed. The worst of oil market imbalance is over with inventory overhang being much less than generally expected. Crude stock draws have already begun and will pick up momentum in the third quarter. Longer-term supply/demand fundamentals are bullish. The United States is becoming a big factor in the NGL market. MENA geopolitical risks to supply remain substantial, and while an Iranian nuclear deal looks more likely than not, oil markets are expected to have to wait until 2016 for more Iranian oil, and by that time it will need it.

Robust U.S. Stock Build

Commercial stocks built this past week, as both crude and products showed builds. This reversed eight consecutive weeks of crude stock draws, but we expect the crude draws to continue next week. Total demand growth remains strong, including gasoline and distillate. We think the April and current weekly reported crude production values are too high, most likely driven by an overstatement of Texas production.

Japanese Crude and Finished Product Stocks Draw

Crude runs fell marginally and imports dropped back such that crude stocks corrected lower. Major product demand performance was much stronger, up nearly 0.5 MMB/D. All the major finished product stocks levels declined. The indicative refining margin remains very good, though softer on the week as all the major cracks gave ground.

Freight Market Outlook

Tanker markets have been counter-seasonally strong in all size groups during May and June. OPEC and Saudi crude production are near record levels, while refiners are reaping stellar margins across the globe and are more than willing to process (and ship) the additional barrels. Unintended floating storage has also provided support as international markets are struggling with surplus barrels. As a containment step while seeking a buyer, these unplaced cargoes are being slowed down while in-transit or delayed upon arrival resulting in substantial opportunity and demurrage costs well in excess of current contango credits. The recent surge in rates is not likely to persist unless floating storage expands further, which is unlikely in PIRA’s view.

U.S. NGL Field Production Soars

U.S. NGL field production has been increasing at accelerating rates. New data from the EIA show that at 3,314 MB/D, April total NGL field production was nearly 14% higher than a year ago. Year-on-year production increases have been running between 13-15% for each month of this year thus far. PIRA had expected to see field production increases begin to abate due to lower drilling and investment activities; however, this has yet to occur in any meaningful way.

Ethanol Prices Increased

Ethanol prices strengthened during the last half of June as stocks drew and the production of blended gasoline hit record levels. Assessments were also supported by rising raw material costs.

U.S. Output and Stocks Lower

U.S. ethanol production dropped to a six-week low 968 MB/D the week ending June 26 as heavy rain and flooding disrupted operations at some Midwestern plants. Inventories have plummeted by nearly 1.2 million barrels over the past two weeks as ethanol-blended gasoline production soared to a near-record 9,106 MB/D last 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.