Friday, September 9 2016
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. Venezuela debt falling due
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- Venezuela’s economic crisis continues to deepen, with protestors taking to the streets to demand the ouster of President Nicolas Maduro.
- The crisis threatens to knock off more than the 300,000 barrels per day that Venezuela has lost since last year.
- There are several landmines ahead in the near future. The Venezuelan government and the state-owned PDVSA owes billions of dollars in debt payments over the next few months.
- In October, a $1.8 billion payment falls due, followed by another $2.9 billion in November.
- The $5 billion in debt due before the end of the year looks pretty painful when considering that the state had only about $11.8 billion in cash reserves as of August.
- A credit event could send oil production down at a much faster rate than seen today.
2. Energy companies top distressed list
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- Oil and gas companies make up the largest share of distressed companies, as rated by S&P Global Ratings.
- There are 251 companies on S&P’s “weakest link” list, the highest number of companies in danger of default since 2009. They collectively owe about $359 billion in debt.
- As of August, 62 of those companies that were in danger of default came from the oil and gas sector, accounting for about one-quarter of the total.
- In the month of August, S&P added 8 energy companies to the list as oil prices fell back, including Chesapeake Energy (NYSE: CHK) and Hornbeck Offshore Services Inc. (NYSE: HOS).
3. Asian oil supply falling
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- OPEC rumors garner a lot of attention, moving oil prices with every new piece of news. Weekly releases from the EIA on the health of U.S. shale also tends to move the markets. But supply is quietly falling in Asia as low oil prices bite into high-cost production.
- China could lose about 6 percent of its supply this year as investment in maintenance dries up.
- Output from Asia’s Top 5 – China, India, Malaysia, Indonesia and Vietnam – is set to fall by 255,000 barrels per day this year, and another 309,000 barrels per day in 2017, according to Energy Aspects and Bloomberg.
- As domestic supply drops, Asia will need to import more, which will help soak up excess supply from the Middle East and elsewhere.
4. Refining margins fall as WTI and Brent converge
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- Second quarter refining earnings shrank in North America after the spread between Brent and WTI narrowed this year compared to 2015.
- North American refiners spent several years making a lot more money than their international counterparts because they were able to buy comparatively cheap American crude priced at WTI, and sell refined products abroad that were linked to higher Brent prices.
- According to 27 companies analyzed by the EIA, 21 of them saw year-on-year declines in refining margins. Most of that is due to the narrowing of the Brent-WTI spread, a gap that has not exceeded $4.50 per barrel since the third quarter of 2015.
- The spread has declined because of falling U.S. oil production and the lifting of the ban on crude oil exports, both of which eased the localized glut within the U.S.
5. EIA sees smaller decline in U.S. oil production
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- The U.S. will lose less oil production than previously thought, according to a new assessment from the EIA.
- The agency cut its expected decline in U.S. output for 2016 from a loss of 700,000 barrels per day to just 650,000 barrels per day. The EIA revised its 2017 production estimate from a decline of 420,000 bpd to a decline of 260,000 bpd.
- The EIA says that the shale industry continues to get more efficient at drilling. The rise of the rig count also suggests that new supplies could offset declining output.
- The EIA expects inventories to grow again throughout 2016, which will cap price gains. But it increased its estimate for U.S. oil demand – demand should rise by 200,000 bpd in 2016 and another 140,000 bpd next year.
6. Nigerian oil coming back?
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- Royal Dutch Shell (NYSE: RDS.A) lifted its force majeure on Bonny Light this week, as a key pipeline was restored into operation.
- The attacks from the Niger Delta Avengers began in February, knocking off the Forcados exports, cutting Nigeria’s output by more than 200,000 barrels per day.
- The outages had topped roughly 900,000 barrels per day in August, but Nigeria could soon see some relief as the Niger Delta Avengers called off further attacks.
- The Forcados terminal could resume operations in the next few weeks.
- More Nigerian supply will weigh on global markets.
7. Contango narrowed in August
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- The first to 13th month spread between oil futures prices has remained negative throughout the two-year oil bust, a sign that the markets discount near-term delivery relative to sales a year away. In other words, there is a supply glut in the short-term.
- That 1st-13th contango widened to more than $10 for WTI in February when prices hit their low point, but the contango narrowed in the following months as the markets grew tighter. The contango grew again in July and August as oil prices retreated into bear market territory, but have since narrowed again as prices climbed back up.
- The deeper contango for WTI compared to Brent reflects high storage levels in the U.S., and the outages in Nigeria, which have tightened the Brent market. A return of Nigerian output could inflate the Brent contango.
- The contango for both crude streams will narrow as time goes on and the market moves closer to balance.
That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.
