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U.S. refiners have returned from maintenance with a vengeance, processing more than 18 million barrels a day of crude and other oils for the first time in the week ended June 22. What does that mean for the markets?
Gasoline stockpiles have increased 2.9 percent in June, the biggest gain for the month since 2009. There’s enough supply to cover 25.4 days of demand, almost a full day above the five-year average.
The record runs are squeezing the once-mighty profit margins for refiners. The Nymex gasoline crack spread, a rough measure for how much refiners make from producing the motor fuel, sank more than 30 percent in June, the biggest drop for the month in a decade, helped by a tightening WTI-Brent spread.
With gasoline the weakest relative to diesel seasonally in five years, refiners are pushing out motor fuel into a swamped market. Typically, production maxes out in the summer to meet driving demand, and refiners are “tuned†to produce more of the motor fuel. A glut of gasoline will weigh on margins, given it’s almost twice the yield of distillate.
“These prices that we are seeing at the pump are going to dissuade growth on the consumer side. On the diesel side, prices are still a little lower than they had been–there was still some room to run,†said Ashley Petersen, lead oil analyst at Stratas Advisors in New York. “It’s a little easier for shipping companies to distribute those costs than it is for John Smith who is paying $3.50 at the pump to distribute that in his monthly budget.â€
The refining bonanza typically leads to declines in U.S. crude stockpiles as refiners increase demand for oil to process. Crude inventories are sliding, after lagging previous years’ declines for the beginning of peak driving season.
Record crude production from the Permian Basin can’t keep up with all-time high demand from refiners and exporters. Stockpiles posted the biggest June drop on a percentage basis since 2009, tumbling across the Midwest and Gulf Coast.
On a four-week average basis, gasoline implied demand is the lowest seasonally since 2015, and falling at a time when it normally increases. The latest monthly data show April demand was down 0.7 percent from a year earlier, according to the Energy Information Administration.
“Now that demand is starting to evaporate as a function of the price being too high, people are going to say ‘I’m not driving to Maine this summer. I am going to drive to the Jersey Shore for my five-day vacation instead,’†said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. As a result, you’ll “have all this gasoline laying around.â€
Some of the apparent demand weakness could be due to exports of the fuel, which have run well above historical levels this spring. Higher pump prices may also put a damper on demand. Retail gasoline flirted with $3 a gallon before falling back, and is still about 60 cents a gallon more expensive than a year ago.
It’s typical to see demand increase around the U.S. Independence Day holiday and into the rest of the summer, according to Nick Holmes, an analyst at Tortoise in Leawood, Kansas, which manages $16 billion in energy-related assets. “The next 45 days will be important†in terms of evaluating the demand trend for the remainder of the year, he said.
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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