Posts Tagged ‘EIA’

Echo to my previous post — 3 Investment Opportunities From a Free Falling Oil Price, Goldman Sachs says oil refiners can average 25% gains in six months on Nov 18th.

Goldman Sachs analyst Neil Mehta is optimistic about oil refiner stocks, resuming the group at Attractive, adding Tesoro NYSE:TSO) to the firm’s conviction list and awarding Buy ratings to Marathon Petroleum (NYSE:MPC), Phillips 66 (NYSE:PSX) and Delek US (NYSE:DK).

The negative factors from 2013, such as shrank Brent-WTI spread, rumor about lift ban on US crude export, and heightened ethanol requirements, are behind us. Goldman predicts WTI crude oil price will remain weak near $70 in the 1st Q of 2015 unless OPEC cut its production level.

Mehta goes further to explain why he’s feeling optimistic about the group:

Refiners are defensive in a weak crude tape Given industry economics are driven more by crude spreads than the directional oil price – we believe refiners represent one of the few energy sectors that can grow cash flow in a declining crude price environment. In addition, we see a seasonal trading tailwind for refiners in 4Q/1Q.

Brent-WTI should widen out – a key positive We expect Brent-WTI spreads will widen out from $4/bbl currently to $10/bbl in 2015-2016 as US oil production/pipeline growth outstrips refining additions. 

Underappreciated Sum-Of-The-Parts (SOTP) value in midstream Midstream/MLP segments provide SOTP upside to refiners from growth, stability and cash flow.

Refiners offer FCF, returns and dividend yield We forecast refiners will generate 9%-11% of the current market caps in annual FCF and 15% ROCE in 2015/2016. Cash flow supports a healthy dividend yield of 3.0%, on median, for the sector.

Source: Barron’s article (link)

Cowen energy analyst team is also keeping a positive view on the refining sector due to solid underlying earnings potential and the developing theme of logistics growth. The firm sees 30%-40% stock price upside for Outperform-rated Delek S Holdings (NYSE:DK), Marathon Petroleum (NYSE:MPC), Western Refining (NYSE:WNR) and PBF Energy (NYSE:PBF).

2014 EIA Permian Basin InfrastructureMost of these refineries have more than 60% of the crude feed-stock sourced from Midland Basin in western Texas. Midland has seen tremendous growth in oil production due to proliferation of hydraulic fracking. The lower crude oil price may slow the frackers’ production rate but not a lot.

2014 EIA Permian Basin WTI Prices

Midland’s oil production outstrips the available pipeline infrastructure since 2009.  According to EIA Sept 2014 report (link), the spread between domestic WTI Midland and WTI Cushing oil prices is widening even faster than Brent-WTI spread.  A series of recent outages at refineries located in or near the Permian, and along the U.S. Gulf Coast caused the West Texas Intermediate (WTI) price at Midland to fall $17.50 per barrel below the price at Cushing, a record difference.

Being said, refiners, who purchase more light crude with cheaper WTI Midland, will benefit from this low oil-price environment.


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The increase of U.S. energy output in recent years has been widely discussed. My previous blog talks about “True or not: US is running out of oil in 2015?” on July 29.  The measurement of future resource availability is the reserves-to-production ratio, which given the current rate of consumption and total proved reserves is about 50 years.

The concern of running out of oil is largely subdued by the slower than expected economic recovery and the higher production rate of shale oil through new technology.   According to data from International Energy Agency (IEA), the U.S. imports of natural gas and crude oil have fallen 32% and 15%, respectively, in the past five years, narrowing the U.S. trade deficit.

WSJ recently ran an analysis to show that the U.S. is on track to pass Russia as the world’s largest producer of OIL AND GAS this year – if it hasn’t already.

2013 US produces more oil than Russia

2013 US produces more oil than Russia? (source: WSJ)

Russia produced an average 10.8M bbl/day in H1 2013. Still, it’s 900K/day more than the U.S. (10.3M) but down from a difference of 3M bbl/day a few years ago.   The good news is that both Russia and the U.S. far outproduce natural gas than Saudi Arabia and the U.S. last year tapped more natural gas than Russia for the first time since 1982, and it’s catching up in pumping crude.  When we count combined total of oil, natural gas, and related fuels, the U.S produced the equivalent of about 22.2M bbl/day  which is slightly higher than the forecasted 21.8M bbl/day in Russia (Russia’s # is an estimate due to lack of data).

Please keep in mind that the 22.2M bbl/day include natural gas liquid (NGL) measured in barrel. Natural Gas is usually measured in Billion cubic feet (Bcf). The U.S. is expected to have storage of 3,820 Bcf at the end of Oct 2013. (source:EIA)  In 2012 Dec, the U.S. produced about 7.03 million barrels of crude oil per day and imported about 7.58 million barrels per day. Being said, out of the 22.2M figure in 2013, probably only one third is crude oil.

Within the U.S., the amount of crude from the Bakken oil field in North Dakota and the Eagle Ford shale in Texas continues to rise rapidly, while Russian output is expected to remain flat through 2016; that’s a big problem for Russia, whose oil exports could fall 25%-30% after 2015, reducing GDP more than $100B.

How much of the oil produced in the United States is consumed in the United States?

While we know the supply side, let’s look at the demand (consumption) of oil products in the U.S.  (*the following numbers exclude natural gas)

Per EIA, the United States consumed a total of 6.87 billion barrels (18.83 million barrels per day) in 2011 and 7.0 billion barrels (19.18 million barrels per day) of refined petroleum products and biofuels in 2010. For both years, this was about 22% of total world petroleum consumption.

In 2012, about 40% of the petroleum consumed by the United States was imported from foreign countries. This was the lowest level since 1991.  Petroleum products include gasoline, diesel fuel, heating oil, jet fuel, chemical feedstocks, asphalt, biofuels (ethanol and biodiesel), and other products. In 2012, about 57% of the crude oil processed in U.S. refineries was imported.

International fuel consumption in 2012

International fuel consumption in 2012

Overall, the U.S. became a (slight) net exporter (exported more than we imported) of refined petroleum products in 2008. The volume of net exports of refined products in December 2012 was equivalent to about 8.5% of the total volume of U.S. petroleum consumption in December 2012.

We are more than halfway to energy independence given that the U.S. is already a net exporter of natural gas products and even though our petroleum products production is still reliant on import, we should be self-sufficient or become an net exporter soon in the next 5 years.

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