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Saturday, 27 September 14
OIL MARKET CONTANGO: SPECULATION ON FUTURE PRICES CAN BE A RISKY MOVE, EVEN FOR TANKER OWNERS HELLENIC SHIPPING NEWS
.jpg) Despite the fact that tanker owners can easily use their vessels as floating storage units for oil, in a bid to exploit the current oil market dynamics, a recent analysis from Mcquilling Services noted that it could prove to be a risky move, as today’s contango is rather different that the one observed during the 2009-2010 period. Just for reminders, after the collapse of the global financial system in 2008, crude oil forward curves moved into steep contango. Fortunes were made in storage asset plays in 2009-2010, which is likely the reason that so much attention is being devoted to the topic today; however, the contango is inherently different today than it was after The Great Recession.
According to Mcquilling, “as the US energy revolution continues to develop, global crude oil supply and demand dynamics have begun to evolve. Improvements to hydraulic fracturing processes have helped the US become the world’s largest crude oil producer. However, due to a protectionist energy policy, US produced crude oil cannot be exported, apart from a few exceptions. This scenario has created a shift in crude oil trade flows and has also impacted regional crude oil pricing. The US now requires less crude imports to meet domestic demand and the new supply and demand rebalances have reduced the longstanding price interdependency between US and foreign crudes. One interesting development that has been closely monitored this summer is the price polarity between the US and European crude oil benchmarks. WTI, the US benchmark, is currently in a forward curve formation referred to as backwardation, while Brent, the European benchmark, has moved into a forward curve formation referred to as contango. In a backwardated market futures prices are lower than spot prices; and in a contangoed market, futures prices are higher than spot prices. A variety of trading strategies are developed when forward commodity curves move into these forward curve formations”.
Mcquilling Services added that “the shape and depth of the forward curve can assist the trader in developing hedging or speculative strategies. Commodity storage is a potentially lucrative strategy that is implemented when futures curves move into contango, predicated on the assumption that you can store a commodity today to sell at a higher spot price in the future. Many analysts and journalists have correctly identified the current contango phenomenon in the Brent curve, and many have begun to link the contango with cargo asset plays utilizing crude oil tankers for crude storage in the Atlantic Basin. However, there are a variety of considerations that must be taken into account when evaluating floating storage plays, which many recent reports have overlooked”.
Meanwhile, “the cost of carrying, or storing, the commodity and the perceived price the cargo can fetch in the future are critical components of a storage asset play. In the floating storage case, the cost of the vessel, financing, insurance and crew represent the bulk of the carrying costs. Storage costs are not uniform, though. For instance, if you are a tanker owner, crude oil producer or are bank with low financing costs, your cost of implementing a floating storage play will likely be lower than other non-strategic speculators. That said, current market conditions make a pretty weak case for floating storage regardless of strategic positioning”.
According to the analysts, “storage plays are normally exercised as a result of bullish sentiment; but, contango curves don’t necessarily reflect a bullish market. It is our view that the current contango is more likely a result of short-term over-supply in the Atlantic Basin, which has driven down near-term prices. The shallow Brent contango levels out by the end of 2014, not leaving much meat on the bone for speculators. In other words, we do not see a long-term increase in crude oil demand leading to higher prices in the future that would justify putting oil into storage at current prices to sell in a future spot market at a premium. Another meaningful difference between today’s contango and the contango of 2009 is the price level at which the contango curves formed, respectively. In 2009, the contango took shape as markets started to recover after the economic collapse. As the global economy weakened, so did crude oil demand. As the global economy recovered, so did crude oil demand. From the bottom of the collapse, there was abundant upside price potential that coincided with increasing crude oil demand. In contrast, today’s contango formed at the top of a multi-year rally. It is our view that we are at the top of a consolidating price range and without substantial changes to demand, prices will likely not have much room to the upside”.
Mcquilling said that “we still perceive the physical crude oil markets to be soft. When global crude oil production decreases at a slower pace than demand, some cargoes may sit on the water and wait for off-takers. We believe this is the case in Asia and the Atlantic Basin. When there is a surplus of crude oil, savvy traders could delay purchasing cargoes until the over-supply starts to dissipate and prices reach a bottom. There is some evidence hinting that this may be taking place. Last week, the US Energy Information Administration, the energy statistics arm of the Department of Energy, released inventory data revealing that US East coast refiners imported 460,000 barrels, as PADD 1 refinery utilization increased by 10.2%.
US crude oil production has been so robust that geopolitical turmoil in key producing nations like Iraq and Libya seem to have little effect on prices. While US production is expected to peak within the next several years, the one to three year global supply forecast is very strong. At the same time, global crude oil demand forecasts are being pared back. The International Energy Agency (IEA) has reduced its global demand target for 2015 to 92.6 million b/d. The revision was made after historical demand figures showed that 2Q2014 demand was the lowest in the last 10 quarters. In correlation with the IEA forecast, OPEC has also indicated that it will likely reduce production volumes by 500,000 b/d in 2015. While floating storage is an enticing strategy to consider, a meaningful shift in crude oil supply, demand and futures prices would have to transpire for this contango to be more than an interesting phenomenon”, it concluded.
Source: Nikos Roussanoglou, Hellenic Shipping News
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Wednesday, 08 October 14
OIL COULD FALL TO USD80 BEFORE SHALE SUPPLY RESPONSE - FITCH
COALspot.com: Brent oil could fall as low as USD80 a barrel before triggering a self-correcting supply response with shale-oil drillers cutting inv ...
Wednesday, 08 October 14
IS THERE ANY BRIGHT SIDE ON THE DRY BULK SEGMENT? - YANNIS OLZIERSKY
In the movie “Life Of Brian”, a character on a nearby cross was singing the famous “Always look on the bright side of life” ...
Tuesday, 07 October 14
TAIPOWER TO IMPORT 525K MT OF LOW ASH AND EXTRA LOW SULFUR SUB-BITUMINOUS COAL
COALspot.com: Taiwan Power Company intends to procure 525,000 metric tons of low ash and extra low sulfur sub-bituminous coal for Taipower thermal ...
Tuesday, 07 October 14
SUB-BIT FOB INDONESIA COAL SWAP SHOWS A FLAT TO WEAK TREND THIS PAST WEEK
COALspot.com: Indonesian coal swaps November 2014 delivery flat week on week and gained US$ 0.10 (-0.20%) per mt day on day. The swap also lost US$ ...
Tuesday, 07 October 14
THE RIO TINTO CONFIRMS THAT NO DISCUSSIONS ARE TAKING PLACE WITH GLENCORE
COALspot.com: The board of Rio Tinto notes the recent press speculation regarding a possible combination of Rio Tinto and Glencore.The Rio Tinto bo ...
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- Savvy Resources Ltd - HongKong
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- Thai Mozambique Logistica
- Central Electricity Authority - India
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- Jindal Steel & Power Ltd - India
- Coal and Oil Company - UAE
- Aboitiz Power Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Oldendorff Carriers - Singapore
- Mintek Dendrill Indonesia
- Interocean Group of Companies - India
- Pipit Mutiara Jaya. PT, Indonesia
- Meralco Power Generation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Link Ltd, New Zealand
- Riau Bara Harum - Indonesia
- McConnell Dowell - Australia
- Merrill Lynch Commodities Europe
- Economic Council, Georgia
- Eastern Energy - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Wood Mackenzie - Singapore
- Electricity Authority, New Zealand
- Star Paper Mills Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- ASAPP Information Group - India
- White Energy Company Limited
- Alfred C Toepfer International GmbH - Germany
- Aditya Birla Group - India
- Formosa Plastics Group - Taiwan
- Billiton Holdings Pty Ltd - Australia
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- Madhucon Powers Ltd - India
- Georgia Ports Authority, United States
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- Semirara Mining Corp, Philippines
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- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- SMG Consultants - Indonesia
- Therma Luzon, Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- Posco Energy - South Korea
- PTC India Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Energy Exchange, India
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Power Finance Corporation Ltd., India
- The Treasury - Australian Government
- Larsen & Toubro Limited - India
- Jaiprakash Power Ventures ltd
- Kartika Selabumi Mining - Indonesia
- Minerals Council of Australia
- Bharathi Cement Corporation - India
- Bulk Trading Sa - Switzerland
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Global Coal Blending Company Limited - Australia
- Maheswari Brothers Coal Limited - India
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
- Medco Energi Mining Internasional
- Global Green Power PLC Corporation, Philippines
- Sakthi Sugars Limited - India
- Petron Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Tata Chemicals Ltd - India
- Xindia Steels Limited - India
- Goldman Sachs - Singapore
- Port Waratah Coal Services - Australia
- Bayan Resources Tbk. - Indonesia
- Indika Energy - Indonesia
- Australian Commodity Traders Exchange
- Neyveli Lignite Corporation Ltd, - India
- IHS Mccloskey Coal Group - USA
- Deloitte Consulting - India
- Australian Coal Association
- Indo Tambangraya Megah - Indonesia
- CIMB Investment Bank - Malaysia
- Parry Sugars Refinery, India
- Attock Cement Pakistan Limited
- Essar Steel Hazira Ltd - India
- Sarangani Energy Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Global Business Power Corporation, Philippines
- Ministry of Mines - Canada
- Kepco SPC Power Corporation, Philippines
- Singapore Mercantile Exchange
- The State Trading Corporation of India Ltd
- Jorong Barutama Greston.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Iligan Light & Power Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Price Waterhouse Coopers - Russia
- Bhatia International Limited - India
- PowerSource Philippines DevCo
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- OPG Power Generation Pvt Ltd - India
- Videocon Industries ltd - India
- Makarim & Taira - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Bukit Baiduri Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Agrawal Coal Company - India
- MS Steel International - UAE
- Orica Mining Services - Indonesia
- Grasim Industreis Ltd - India
- Sindya Power Generating Company Private Ltd
- GAC Shipping (India) Pvt Ltd
- Siam City Cement PLC, Thailand
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Dalmia Cement Bharat India
- Metalloyd Limited - United Kingdom
- Ind-Barath Power Infra Limited - India
- Malabar Cements Ltd - India
- Sical Logistics Limited - India
- Directorate Of Revenue Intelligence - India
- ICICI Bank Limited - India
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- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Planning Commission, India
- Energy Development Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- The University of Queensland
- New Zealand Coal & Carbon
- Vizag Seaport Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Central Java Power - Indonesia
- Mercator Lines Limited - India
- Rio Tinto Coal - Australia
- SN Aboitiz Power Inc, Philippines
- CNBM International Corporation - China
- Karaikal Port Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- SMC Global Power, Philippines
- LBH Netherlands Bv - Netherlands
- Kapuas Tunggal Persada - Indonesia
- Ministry of Transport, Egypt
- Latin American Coal - Colombia
- London Commodity Brokers - England
- Wilmar Investment Holdings
- India Bulls Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Cigading International Bulk Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Trasteel International SA, Italy
- Chettinad Cement Corporation Ltd - India
- PNOC Exploration Corporation - Philippines
- Salva Resources Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Carbofer General Trading SA - India
- Africa Commodities Group - South Africa
- San Jose City I Power Corp, Philippines
- Ministry of Finance - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- VISA Power Limited - India
- Indian Oil Corporation Limited
- Parliament of New Zealand
- Kumho Petrochemical, South Korea
- Barasentosa Lestari - Indonesia
- Lanco Infratech Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Holcim Trading Pte Ltd - Singapore
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- South Luzon Thermal Energy Corporation
- Ceylon Electricity Board - Sri Lanka
- Thiess Contractors Indonesia
- Bangladesh Power Developement Board
- Edison Trading Spa - Italy
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Tamil Nadu electricity Board
- International Coal Ventures Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Banpu Public Company Limited - Thailand
- Intertek Mineral Services - Indonesia
- Borneo Indobara - Indonesia
- Kaltim Prima Coal - Indonesia
- Sojitz Corporation - Japan
- Cement Manufacturers Association - India
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- Globalindo Alam Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Anglo American - United Kingdom
- GMR Energy Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
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