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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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Saturday, 27 September 14
MORE COAL MINERS AGREE TO AMEND CONTRACTS - THE JAKARTA POST
The Energy and Mineral Resources Ministry is in a rush to beat a deadline for the conclusion of numerous memorandums of understanding (MoUs) with t ...
Friday, 26 September 14
INDIA SUPREME COURT RULING TO HIT STEEL, UTILITY EARNINGS, SAYS FITCH
COALspot.com: The 24 September Supreme Court of India (SCI) decision to cancel almost every coal block allocation since 1993 will have a negative f ...
Friday, 26 September 14
U.S WEEKLY COAL PRODUCTION FELL 1.8% WEEK OVER WEEK, SAYS EIA
COALspot.com – United States the world's one of largest coal producers, produced approximately 18.80 million short tons (mmst) of c ...
Friday, 26 September 14
ORACLE SIGNS EPC FRAMEWORK AGREEMENT WITH SEPCO FOR COAL MINE AND POWER PLANT IN PAKISTAN
COALspot.com: Oracle Coalfields PLC, the UK developer of a lignite coal mine and power plant in the south-eastern Sindh Province, Pakistan, has ann ...
Friday, 26 September 14
NEWCASTLMAXES ARE THE MOST SOUGHT AFTER VESSELS BY SHIP OWNERS TODAY SAYS VESSELS VALUE
KNOWLEDGE TO ELEVATE
Determining a ship’s fair value can be a very tricky business, especially when you’re the one paying. As such ...
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- Deloitte Consulting - India
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- GAC Shipping (India) Pvt Ltd
- White Energy Company Limited
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- Lanco Infratech Ltd - India
- Wood Mackenzie - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Commonwealth Bank - Australia
- PNOC Exploration Corporation - Philippines
- ICICI Bank Limited - India
- Carbofer General Trading SA - India
- Minerals Council of Australia
- Straits Asia Resources Limited - Singapore
- Interocean Group of Companies - India
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Bharathi Cement Corporation - India
- Maheswari Brothers Coal Limited - India
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Mjunction Services Limited - India
- Mercuria Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- The Treasury - Australian Government
- Bulk Trading Sa - Switzerland
- Billiton Holdings Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- Kohat Cement Company Ltd. - Pakistan
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- The University of Queensland
- Central Java Power - Indonesia
- Electricity Authority, New Zealand
- Binh Thuan Hamico - Vietnam
- European Bulk Services B.V. - Netherlands
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement - Thailand
- PowerSource Philippines DevCo
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- Directorate Of Revenue Intelligence - India
- Central Electricity Authority - India
- Australian Commodity Traders Exchange
- GVK Power & Infra Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Energy Exchange, India
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- Electricity Generating Authority of Thailand
- Leighton Contractors Pty Ltd - Australia
- Meralco Power Generation, Philippines
- Renaissance Capital - South Africa
- Sakthi Sugars Limited - India
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- Altura Mining Limited, Indonesia
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- Tata Chemicals Ltd - India
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- Romanian Commodities Exchange
- Trasteel International SA, Italy
- GN Power Mariveles Coal Plant, Philippines
- ASAPP Information Group - India
- Indonesian Coal Mining Association
- IHS Mccloskey Coal Group - USA
- Wilmar Investment Holdings
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Orica Mining Services - Indonesia
- Petron Corporation, Philippines
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- Global Business Power Corporation, Philippines
- Medco Energi Mining Internasional
- Star Paper Mills Limited - India
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- Georgia Ports Authority, United States
- Kalimantan Lumbung Energi - Indonesia
- Energy Development Corp, Philippines
- McConnell Dowell - Australia
- Asmin Koalindo Tuhup - Indonesia
- IEA Clean Coal Centre - UK
- Chettinad Cement Corporation Ltd - India
- Videocon Industries ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Kaltim Prima Coal - Indonesia
- New Zealand Coal & Carbon
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- International Coal Ventures Pvt Ltd - India
- Grasim Industreis Ltd - India
- SN Aboitiz Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- India Bulls Power Limited - India
- Bhatia International Limited - India
- VISA Power Limited - India
- Sojitz Corporation - Japan
- Heidelberg Cement - Germany
- Riau Bara Harum - Indonesia
- Attock Cement Pakistan Limited
- Gujarat Sidhee Cement - India
- Gujarat Electricity Regulatory Commission - India
- Posco Energy - South Korea
- Jindal Steel & Power Ltd - India
- Ind-Barath Power Infra Limited - India
- Simpson Spence & Young - Indonesia
- LBH Netherlands Bv - Netherlands
- CNBM International Corporation - China
- Jorong Barutama Greston.PT - Indonesia
- Merrill Lynch Commodities Europe
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- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Sarangani Energy Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Kartika Selabumi Mining - Indonesia
- Anglo American - United Kingdom
- Planning Commission, India
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- MS Steel International - UAE
- Tamil Nadu electricity Board
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- SMG Consultants - Indonesia
- Price Waterhouse Coopers - Russia
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- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Dalmia Cement Bharat India
- Rio Tinto Coal - Australia
- The State Trading Corporation of India Ltd
- Madhucon Powers Ltd - India
- Coal and Oil Company - UAE
- Eastern Coal Council - USA
- Bahari Cakrawala Sebuku - Indonesia
- Goldman Sachs - Singapore
- Sindya Power Generating Company Private Ltd
- OPG Power Generation Pvt Ltd - India
- Edison Trading Spa - Italy
- Directorate General of MIneral and Coal - Indonesia
- Indika Energy - Indonesia
- Xindia Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Barasentosa Lestari - Indonesia
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aditya Birla Group - India
- Meenaskhi Energy Private Limited - India
- Global Green Power PLC Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- London Commodity Brokers - England
- Larsen & Toubro Limited - India
- Bukit Makmur.PT - Indonesia
- Ministry of Mines - Canada
- Kobexindo Tractors - Indoneisa
- Power Finance Corporation Ltd., India
- SMC Global Power, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Jaiprakash Power Ventures ltd
- Iligan Light & Power Inc, Philippines
- Vedanta Resources Plc - India
- Coastal Gujarat Power Limited - India
- Independent Power Producers Association of India
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Indian Oil Corporation Limited
- Kapuas Tunggal Persada - Indonesia
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- PTC India Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- Indogreen Group - Indonesia
- Cement Manufacturers Association - India
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Pendopo Energi Batubara - Indonesia
- Orica Australia Pty. Ltd.
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Australian Coal Association
- Sinarmas Energy and Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
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- GMR Energy Limited - India
- Parliament of New Zealand
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- TeaM Sual Corporation - Philippines
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