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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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Tuesday, 07 October 14
API 8 CFR SOUTH CHINA COAL SWAP HEADED SOUTH
COALspot.com: API 8 CFR South China Coal swap for delivery in November 2014 decreased US$ 1.10 (-1.64%) month over month and US$ 0.25 (-0.38%) ...
Monday, 06 October 14
' COAL-BY-WIRE' FROM SUMATRA TO JAVA - THE JAKARTA POST
Coal from the island of Sumatra accounts for most of Indonesia’s low-grade lignite, a low-quality coal that receives a poor price in internat ...
Monday, 06 October 14
THE IRON ORE SHIPPING BUSINESS IS FACING SOME ROUGH SEAS - EAST ASIA FORUM
The impact of Chinese demand on global iron ore prices is well known. A less acknowledged consequence of China’s emergence is the transformat ...
Sunday, 05 October 14
BALTIC DRY INDEX SLIPS 1.14%; BALTIC PANAMAX INDEX GAINED 9.91% WEEK ON WEEK
COALspot.com: The BDI was down by 1.14 pct and closed at 1037 points this Friday.
The Cape index was down significantly week on week or lost 5 ...
Friday, 03 October 14
U.S. WEEKLY COAL PRODUCTION UP 5.8% TO 19.9 MMST
COALspot.com – United States the world's one of largest coal producers, produced approximately 19.9 million short tons (mmst) of co ...
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- Cigading International Bulk Terminal - Indonesia
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- Gujarat Sidhee Cement - India
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Madhucon Powers Ltd - India
- Mercator Lines Limited - India
- San Jose City I Power Corp, Philippines
- Medco Energi Mining Internasional
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Karaikal Port Pvt Ltd - India
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- Mintek Dendrill Indonesia
- Wood Mackenzie - Singapore
- Indian Energy Exchange, India
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- Bhushan Steel Limited - India
- Bangladesh Power Developement Board
- AsiaOL BioFuels Corp., Philippines
- Leighton Contractors Pty Ltd - Australia
- Eastern Coal Council - USA
- GVK Power & Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- Straits Asia Resources Limited - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Thai Mozambique Logistica
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- Jorong Barutama Greston.PT - Indonesia
- GN Power Mariveles Coal Plant, Philippines
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- Ministry of Finance - Indonesia
- Australian Commodity Traders Exchange
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- Kepco SPC Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- PTC India Limited - India
- Directorate General of MIneral and Coal - Indonesia
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- Heidelberg Cement - Germany
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Essar Steel Hazira Ltd - India
- Videocon Industries ltd - India
- IHS Mccloskey Coal Group - USA
- Meenaskhi Energy Private Limited - India
- Binh Thuan Hamico - Vietnam
- Metalloyd Limited - United Kingdom
- Indian Oil Corporation Limited
- Africa Commodities Group - South Africa
- Wilmar Investment Holdings
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- Formosa Plastics Group - Taiwan
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- Toyota Tsusho Corporation, Japan
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- Standard Chartered Bank - UAE
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- Bank of Tokyo Mitsubishi UFJ Ltd
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- Price Waterhouse Coopers - Russia
- TeaM Sual Corporation - Philippines
- Energy Link Ltd, New Zealand
- Attock Cement Pakistan Limited
- Aditya Birla Group - India
- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- Energy Development Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Borneo Indobara - Indonesia
- Posco Energy - South Korea
- Global Business Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Tamil Nadu electricity Board
- Therma Luzon, Inc, Philippines
- Interocean Group of Companies - India
- Planning Commission, India
- SMC Global Power, Philippines
- Salva Resources Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Commonwealth Bank - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Anglo American - United Kingdom
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- Cement Manufacturers Association - India
- Port Waratah Coal Services - Australia
- European Bulk Services B.V. - Netherlands
- Timah Investasi Mineral - Indoneisa
- Baramulti Group, Indonesia
- Semirara Mining Corp, Philippines
- Global Coal Blending Company Limited - Australia
- CIMB Investment Bank - Malaysia
- SMG Consultants - Indonesia
- India Bulls Power Limited - India
- Kartika Selabumi Mining - Indonesia
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- Renaissance Capital - South Africa
- GMR Energy Limited - India
- Dalmia Cement Bharat India
- Kaltim Prima Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Indo Tambangraya Megah - Indonesia
- Central Electricity Authority - India
- Sojitz Corporation - Japan
- Orica Australia Pty. Ltd.
- Ambuja Cements Ltd - India
- Xindia Steels Limited - India
- Eastern Energy - Thailand
- Indogreen Group - Indonesia
- Edison Trading Spa - Italy
- SN Aboitiz Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- The State Trading Corporation of India Ltd
- Vedanta Resources Plc - India
- Electricity Authority, New Zealand
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Siam City Cement - Thailand
- Bulk Trading Sa - Switzerland
- Indika Energy - Indonesia
- Independent Power Producers Association of India
- Iligan Light & Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Maheswari Brothers Coal Limited - India
- Bhatia International Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
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- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- Coalindo Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IEA Clean Coal Centre - UK
- GAC Shipping (India) Pvt Ltd
- Makarim & Taira - Indonesia
- Antam Resourcindo - Indonesia
- Petron Corporation, Philippines
- Singapore Mercantile Exchange
- Power Finance Corporation Ltd., India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Samtan Co., Ltd - South Korea
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- ASAPP Information Group - India
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Intertek Mineral Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
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- Sakthi Sugars Limited - India
- Georgia Ports Authority, United States
- Indonesian Coal Mining Association
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- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- Electricity Generating Authority of Thailand
- Star Paper Mills Limited - India
- Krishnapatnam Port Company Ltd. - India
- Romanian Commodities Exchange
- Bhoruka Overseas - Indonesia
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- Bharathi Cement Corporation - India
- Goldman Sachs - Singapore
- Lanco Infratech Ltd - India
- Chettinad Cement Corporation Ltd - India
- Ind-Barath Power Infra Limited - India
- Ministry of Mines - Canada
- The University of Queensland
- Jaiprakash Power Ventures ltd
- Kumho Petrochemical, South Korea
- Petrochimia International Co. Ltd.- Taiwan
- ICICI Bank Limited - India
- Bayan Resources Tbk. - Indonesia
- White Energy Company Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CNBM International Corporation - China
- Maharashtra Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Oldendorff Carriers - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Chamber of Mines of South Africa
- Parliament of New Zealand
- Bukit Makmur.PT - Indonesia
- Australian Coal Association
- Altura Mining Limited, Indonesia
- Mjunction Services Limited - India
- London Commodity Brokers - England
- Ceylon Electricity Board - Sri Lanka
- Trasteel International SA, Italy
- International Coal Ventures Pvt Ltd - India
- Coal and Oil Company - UAE
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