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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, 18 September 14
INDONESIA'S JULY COAL EXPORT VOLUME DROPPED 5.13% M-O-M
COALspot.com: Indonesia, one of the world's largest coal producer and the global leading multi grade coal exporter shipped around $1.65* ...
Thursday, 18 September 14
PANAMAX : US GULF/CHINA FRONTHAUL ARE NOW PAYING TYPICALLY 14.5K + 450K BB - FEARNRESEARCH
Handy
We still see a firming tendency in the Atlantic and it is still ECSA and USG leading on. USG/Cont now up in about USD 17/18k for a Smax whi ...
Thursday, 18 September 14
ELECTRONIC BILLS OF LADING: A GUIDE TO PAPERLESS TRADING WHICH HAS TAKEN THE SHIPPING INDUSTRY BY STORM
Bimco has recently developed and published a charter party clause that specifically addresses the use of electronic bills of lading. Increasing use ...
Wednesday, 17 September 14
PANAMAX: LIMITED INTEREST IN BOTH BASINS; RISING TONNAGE - INTERMODAL
With the week starting off at a fast pace and with the positive momentum from the previous Friday seemingly sticking around for a bit longer, most ...
Wednesday, 17 September 14
SHIPPING MARKET INSIGHT - GEORGE LAZARIDIS
Since the onslaught of 2013 the rising tide of asset prices had been primarily driven by the increasing freight market conditions and the improving ...
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- Central Electricity Authority - India
- Meenaskhi Energy Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- Electricity Authority, New Zealand
- Sical Logistics Limited - India
- Africa Commodities Group - South Africa
- Chettinad Cement Corporation Ltd - India
- Orica Mining Services - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Videocon Industries ltd - India
- Port Waratah Coal Services - Australia
- Thai Mozambique Logistica
- Australian Commodity Traders Exchange
- Karaikal Port Pvt Ltd - India
- Singapore Mercantile Exchange
- The State Trading Corporation of India Ltd
- Salva Resources Pvt Ltd - India
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- LBH Netherlands Bv - Netherlands
- Planning Commission, India
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- IEA Clean Coal Centre - UK
- Edison Trading Spa - Italy
- SN Aboitiz Power Inc, Philippines
- Larsen & Toubro Limited - India
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
- Power Finance Corporation Ltd., India
- Borneo Indobara - Indonesia
- Altura Mining Limited, Indonesia
- Commonwealth Bank - Australia
- Eastern Energy - Thailand
- Bhushan Steel Limited - India
- Grasim Industreis Ltd - India
- Cigading International Bulk Terminal - Indonesia
- White Energy Company Limited
- Mjunction Services Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Sree Jayajothi Cements Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Latin American Coal - Colombia
- Sarangani Energy Corporation, Philippines
- Coal and Oil Company - UAE
- London Commodity Brokers - England
- Kaltim Prima Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- Orica Australia Pty. Ltd.
- Essar Steel Hazira Ltd - India
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Georgia Ports Authority, United States
- Romanian Commodities Exchange
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Coalindo Energy - Indonesia
- Siam City Cement - Thailand
- Indian Energy Exchange, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- India Bulls Power Limited - India
- Coastal Gujarat Power Limited - India
- Parry Sugars Refinery, India
- Formosa Plastics Group - Taiwan
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- Mintek Dendrill Indonesia
- Goldman Sachs - Singapore
- Xindia Steels Limited - India
- Simpson Spence & Young - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Alfred C Toepfer International GmbH - Germany
- Bharathi Cement Corporation - India
- CNBM International Corporation - China
- Krishnapatnam Port Company Ltd. - India
- Interocean Group of Companies - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Medco Energi Mining Internasional
- Globalindo Alam Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Gujarat Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- SMC Global Power, Philippines
- Straits Asia Resources Limited - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Energy Development Corp, Philippines
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- Jaiprakash Power Ventures ltd
- ICICI Bank Limited - India
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Cement Manufacturers Association - India
- Maheswari Brothers Coal Limited - India
- Madhucon Powers Ltd - India
- ASAPP Information Group - India
- Heidelberg Cement - Germany
- Chamber of Mines of South Africa
- MS Steel International - UAE
- Semirara Mining Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- San Jose City I Power Corp, Philippines
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Rio Tinto Coal - Australia
- Carbofer General Trading SA - India
- Trasteel International SA, Italy
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kapuas Tunggal Persada - Indonesia
- Manunggal Multi Energi - Indonesia
- Mercator Lines Limited - India
- Uttam Galva Steels Limited - India
- The Treasury - Australian Government
- Samtan Co., Ltd - South Korea
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- Indogreen Group - Indonesia
- Merrill Lynch Commodities Europe
- Meralco Power Generation, Philippines
- Electricity Generating Authority of Thailand
- Kumho Petrochemical, South Korea
- Indo Tambangraya Megah - Indonesia
- TeaM Sual Corporation - Philippines
- Dalmia Cement Bharat India
- Bukit Asam (Persero) Tbk - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Mercuria Energy - Indonesia
- Ministry of Finance - Indonesia
- Holcim Trading Pte Ltd - Singapore
- SMG Consultants - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Parliament of New Zealand
- Renaissance Capital - South Africa
- Karbindo Abesyapradhi - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Intertek Mineral Services - Indonesia
- Global Business Power Corporation, Philippines
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- Aditya Birla Group - India
- Ministry of Transport, Egypt
- International Coal Ventures Pvt Ltd - India
- PTC India Limited - India
- Antam Resourcindo - Indonesia
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- Posco Energy - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- Therma Luzon, Inc, Philippines
- Barasentosa Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Indian Oil Corporation Limited
- IHS Mccloskey Coal Group - USA
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- Minerals Council of Australia
- Petron Corporation, Philippines
- Attock Cement Pakistan Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhatia International Limited - India
- Pendopo Energi Batubara - Indonesia
- Kideco Jaya Agung - Indonesia
- Vizag Seaport Private Limited - India
- GVK Power & Infra Limited - India
- Star Paper Mills Limited - India
- Independent Power Producers Association of India
- Economic Council, Georgia
- Sinarmas Energy and Mining - Indonesia
- CIMB Investment Bank - Malaysia
- South Luzon Thermal Energy Corporation
- Deloitte Consulting - India
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Lanco Infratech Ltd - India
- Bulk Trading Sa - Switzerland
- Central Java Power - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Mines - Canada
- Maharashtra Electricity Regulatory Commission - India
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Gujarat Mineral Development Corp Ltd - India
- Tata Chemicals Ltd - India
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Bhoruka Overseas - Indonesia
- Eastern Coal Council - USA
- The University of Queensland
- Marubeni Corporation - India
- Bukit Makmur.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Baiduri Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- Iligan Light & Power Inc, Philippines
- New Zealand Coal & Carbon
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ambuja Cements Ltd - India
- VISA Power Limited - India
- Makarim & Taira - Indonesia
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