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Gasoline Contango And Crude Inventories Weigh On Oil Prices

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. M&A activity picking up

- In the second quarter, the value of the average M&A deal in the oil industry reached its highest level since the third quarter of 2014. The average deal was valued at $182 million.
- Range Resources (NYSE: RRC) acquired Memorial Resource Development. Devon Energy (NYSE: DVN) sold off assets in the Midland and Anadarko Basins.
- The sharp increase in the value of M&A deals indicates rising confidence in the oil markets as prices began to rebound. Oil prices jumped from $26 per barrel at their lowest point in the first quarter to $50 per barrel at the end of the second.
- There is no shortage of companies looking to dispose of assets, a fact that has pushed down the value of assets themselves. Debt markets remained interested in the sector throughout 2015, allowing E&Ps to access debt financing. More equity has been issued lately, providing cash to companies for asset acquisition.

2. Gasoline spreads move into contango

- Gasoline margins are typically in a state of backwardation in the summer, in which front-month contracts trade at a premium to longer-term futures. That happens because of peak driving season, creating short-term demand in the summer months.
- But this year is more atypical, with gasoline markets in a state of contango – front-month contracts are trading at a discount to gasoline futures one year out.
- This reflects the enormous levels of gasoline inventories, storage that has piled up because of too much supply.
- In June, the average RBOB 1st-13th spread was -8 cents per gallon, the first June contango since 2010, according to the EIA.
- Gasoline inventories remain significantly above the five-year average for this time of year and will continue to weigh on oil prices.

3. North Sea decommissioning costs set to spike

(Click to enlarge)

- Aging oil fields in the North Sea are set to shut down at an accelerating pace in the coming years. Spending on decommissioning is expected to reach $22.2 billion between 2014 and 2024, a figure that is 16 percent higher than what was expected two years ago.
- Annual…




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