Balancing oil storage capacity

EY has said that as US producers slashed spending, idled rigs, withheld completions, and neared the ceiling on domestic energy storage, OPEC generally maintained its high production level in the first quarter of this year. Yet, despite OPEC members boosting daily crude production by 810 000 bbls during March, recent short term forecasts from the EIA showed continued growth in US production through the second quarter. However, EY has reported that as low oil prices and spending reductions continue to impact domestic producers, the EIA expects production to slow in the second half of this year.

Deborah Byers, Oil and Gas Leader, EY LLP said, “US producers have demonstrated their commitment to capital discipline and their flexibility and agility in gearing down quickly after the decline in oil prices. Rapid, strategic response is key for individual companies’ resilience amid volatile prices. And on a broader scale, it demonstrates the US’ ability to move quickly and become a swing producer for the global oil market.”

Crude oil storage capacity in the US poses another challenge, according to EY, in the continued growth of domestic production amid low oil prices. US crude oil commercial stocks are at their highest point in over 85 years and are growing at the rate of approximately 1 million bpd, but storage could be near full in the next two or three months.

Downstream

As a result of low crude prices and some refinery outages, global refining margins were generally strong in the first quarter of this year, and this was particularly the case in the US. With access to advantaged crudes over the past four years, US midcontinent refiners have generally seen stronger gains than those more exposed to global crude oil markets. However, the Midcontinent advantage is lessening as many of the transportation bottlenecks have been removed.

Oilfield services

As upstream operators continue to push to cut operational spending, oilfield services companies will feel persistent pressure from decreased demand for their services and equipment and increased requests for discounts. Looking regionally at rig counts, EY has reported that US rig activity flattened on the high end during 2014, only to slide sharply in early 2015. Canadian rig activity, which had been showing some year on year improvement, is now headed down with US activity. International rig counts are also sliding.

Transactions

Oil and gas transaction activity collapsed during the first quarter as companies focused on cutting spending, shoring up their balance sheets and leveraging debt and/or equity options. The reported total oil and gas deal value in Q1 was 74% lower than Q4 2014. The number of deals was down 32% in the same time period. OF the transactions taking place, the US midstream continues to dominate activity with notable deals such as Energy Transfer Partners acquisition of Regency Partners. Looking forward, the second half of his year should see a noticeable uptick in transaction activity.

Byers commented, “while volatile oil prices make it difficult for buyers and sellers to agree on valuation, more companies will likely accept terms based on current pricing in the second half of the year. During this time, cost pressures, portfolio optimisation and capital market tightness will likely spur increased acquisition and divestment activity.”

Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/refining/29042015/oil-storage-boosts/