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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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Thursday, 25 September 14
LACK OF COAL BUSINESS PUSHING DOWN PANAMAX EARNINGS IN PACIFIC
Handy
In the Atlantic we see rates steady climbing upwards. More coal cargoes out of USG and USEC are helping the TA market which is up some USD ...
Wednesday, 24 September 14
ADARO AGREED TO REDUCE ITS CONCESSION AREA TO 31,379.8 HECTARES
COALspot.com: PT Adaro Energy Tbk (Adaro Energy) today announced that, PT Adaro Indonesia (AI), its wholly owned subsidiary, entered into a M ...
Wednesday, 24 September 14
CAPESIZE: ACTIVITY IN BOTH BASINS WAS UNIMPRESSIVE
COALspot.com: The end of the week prior seems to have marked the tone for the days that followed, with the Dry Bulk market giving up a significant ...
Tuesday, 23 September 14
MEDCO TO INCREASE ITS COAL PRODUCTION NEXT YEAR
COALspot.com: PT Medco Energi Internasional is looking to increase its coal production next year, supported by the launch of operations at its Duta ...
Monday, 22 September 14
COAL SECTOR CHAOS - GENESIS TO REVELATION - DIPESH DIPU
COALspot.com: “Let there be light”, intends the government of India but the fuel side of the story paints a blackout. The recent Suprem ...
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- Kumho Petrochemical, South Korea
- Ministry of Transport, Egypt
- Sojitz Corporation - Japan
- The Treasury - Australian Government
- Alfred C Toepfer International GmbH - Germany
- Savvy Resources Ltd - HongKong
- The State Trading Corporation of India Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Indian Energy Exchange, India
- Meenaskhi Energy Private Limited - India
- Central Electricity Authority - India
- Maheswari Brothers Coal Limited - India
- SMC Global Power, Philippines
- Marubeni Corporation - India
- Coal and Oil Company - UAE
- Ministry of Finance - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- OPG Power Generation Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Economic Council, Georgia
- Chettinad Cement Corporation Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- CIMB Investment Bank - Malaysia
- European Bulk Services B.V. - Netherlands
- Central Java Power - Indonesia
- ASAPP Information Group - India
- Barasentosa Lestari - Indonesia
- San Jose City I Power Corp, Philippines
- Antam Resourcindo - Indonesia
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Jaiprakash Power Ventures ltd
- Directorate Of Revenue Intelligence - India
- Kohat Cement Company Ltd. - Pakistan
- SN Aboitiz Power Inc, Philippines
- Indogreen Group - Indonesia
- Ministry of Mines - Canada
- GMR Energy Limited - India
- Petron Corporation, Philippines
- Medco Energi Mining Internasional
- Bayan Resources Tbk. - Indonesia
- Star Paper Mills Limited - India
- Bhoruka Overseas - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SMG Consultants - Indonesia
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Australian Coal Association
- Gujarat Sidhee Cement - India
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- LBH Netherlands Bv - Netherlands
- Planning Commission, India
- ICICI Bank Limited - India
- Attock Cement Pakistan Limited
- India Bulls Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Bharathi Cement Corporation - India
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- Tata Chemicals Ltd - India
- Rio Tinto Coal - Australia
- Georgia Ports Authority, United States
- Borneo Indobara - Indonesia
- Mercuria Energy - Indonesia
- Orica Mining Services - Indonesia
- Interocean Group of Companies - India
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- Independent Power Producers Association of India
- Kideco Jaya Agung - Indonesia
- Grasim Industreis Ltd - India
- Kaltim Prima Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- International Coal Ventures Pvt Ltd - India
- Mercator Lines Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Ceylon Electricity Board - Sri Lanka
- Sarangani Energy Corporation, Philippines
- Vizag Seaport Private Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Indo Tambangraya Megah - Indonesia
- Globalindo Alam Lestari - Indonesia
- Kartika Selabumi Mining - Indonesia
- Siam City Cement - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Standard Chartered Bank - UAE
- Eastern Energy - Thailand
- Thiess Contractors Indonesia
- Karaikal Port Pvt Ltd - India
- Electricity Authority, New Zealand
- Intertek Mineral Services - Indonesia
- Semirara Mining Corp, Philippines
- Essar Steel Hazira Ltd - India
- Iligan Light & Power Inc, Philippines
- Siam City Cement PLC, Thailand
- The University of Queensland
- Sindya Power Generating Company Private Ltd
- Madhucon Powers Ltd - India
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Kapuas Tunggal Persada - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Wilmar Investment Holdings
- Cement Manufacturers Association - India
- Kepco SPC Power Corporation, Philippines
- Parry Sugars Refinery, India
- PNOC Exploration Corporation - Philippines
- GVK Power & Infra Limited - India
- Videocon Industries ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Krishnapatnam Port Company Ltd. - India
- South Luzon Thermal Energy Corporation
- Merrill Lynch Commodities Europe
- Edison Trading Spa - Italy
- Therma Luzon, Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Carbofer General Trading SA - India
- PetroVietnam Power Coal Import and Supply Company
- Salva Resources Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- VISA Power Limited - India
- Agrawal Coal Company - India
- Heidelberg Cement - Germany
- Bukit Asam (Persero) Tbk - Indonesia
- Jindal Steel & Power Ltd - India
- Global Coal Blending Company Limited - Australia
- Formosa Plastics Group - Taiwan
- Indian Oil Corporation Limited
- Deloitte Consulting - India
- White Energy Company Limited
- Straits Asia Resources Limited - Singapore
- Aditya Birla Group - India
- Goldman Sachs - Singapore
- Malabar Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Renaissance Capital - South Africa
- Energy Link Ltd, New Zealand
- Global Business Power Corporation, Philippines
- Vedanta Resources Plc - India
- Simpson Spence & Young - Indonesia
- Larsen & Toubro Limited - India
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Metalloyd Limited - United Kingdom
- Africa Commodities Group - South Africa
- Electricity Generating Authority of Thailand
- Samtan Co., Ltd - South Korea
- Miang Besar Coal Terminal - Indonesia
- Lanco Infratech Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sakthi Sugars Limited - India
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
- Australian Commodity Traders Exchange
- Karbindo Abesyapradhi - Indoneisa
- Posco Energy - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Mintek Dendrill Indonesia
- Indika Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- Trasteel International SA, Italy
- Minerals Council of Australia
- Latin American Coal - Colombia
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Singapore Mercantile Exchange
- Coastal Gujarat Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Xindia Steels Limited - India
- Power Finance Corporation Ltd., India
- Toyota Tsusho Corporation, Japan
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Bahari Cakrawala Sebuku - Indonesia
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Eastern Coal Council - USA
- Binh Thuan Hamico - Vietnam
- Ambuja Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Altura Mining Limited, Indonesia
- Meralco Power Generation, Philippines
- Bukit Baiduri Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Thai Mozambique Logistica
- Energy Development Corp, Philippines
- Makarim & Taira - Indonesia
- Sinarmas Energy and Mining - Indonesia
- London Commodity Brokers - England
- Romanian Commodities Exchange
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