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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, 04 September 14
PUNJAB STATE POWER CORPORATION LIMITED OF INDIA HAS DECIDED TO BUY IMPORTED COAL - HINDUSTAN TIMES
COALspot.com: The Punjab State Power Corporation Limited (PSPCL) has decided to buy imported coal to run its thermal plants, as reported by Hindust ...
Thursday, 04 September 14
INDONESIAN COAL MINERS MAY GET MORE TIME ON ROYALTIES - FITCH RATINGS
COALspot.com: Fitch Ratings says that coal miners in Indonesia are likely to get more time to repay the government the royalties that were set off ...
Thursday, 04 September 14
INDONESIAN COAL SWAPS SLIDE THIS PAST WEEK
COALspot.com: Indonesian coal swaps for average October 2014 decreased US$ 0.90 (-1.68%) day on day and US$ 1.80 (-3.31%) per mt week on week. The ...
Thursday, 04 September 14
CAPESIZE : SENTIMENT REMAINS POSITIVE FOR Q3/Q4 - FEARNRESEARCH
Handy
The Atlantic market has experienced more activity this week. Rates for TA´s are up about 8% w-o-w, much lead by an increasing number ...
Wednesday, 03 September 14
KOREA MIDLAND POWER CO. LTD INVITES BIDS FOR 1 MMT OF BITUMINOUS & SUB-BITUMINOUS COAL FOR BORYEONG POWER PLANT
COALspot.com: KOMIPO again in the market for 1 million tons of 5700 NAR and 4600 NAR coal for Jan – March 2015. South Korean state-owned util ...
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- Tamil Nadu electricity Board
- Bharathi Cement Corporation - India
- SN Aboitiz Power Inc, Philippines
- GMR Energy Limited - India
- Xindia Steels Limited - India
- Iligan Light & Power Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Eastern Energy - Thailand
- Independent Power Producers Association of India
- Bangladesh Power Developement Board
- Jindal Steel & Power Ltd - India
- CNBM International Corporation - China
- Parliament of New Zealand
- Global Business Power Corporation, Philippines
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Rio Tinto Coal - Australia
- Ministry of Finance - Indonesia
- Aboitiz Power Corporation - Philippines
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- Indonesian Coal Mining Association
- Billiton Holdings Pty Ltd - Australia
- IHS Mccloskey Coal Group - USA
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- Orica Mining Services - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Toyota Tsusho Corporation, Japan
- Electricity Authority, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karaikal Port Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Uttam Galva Steels Limited - India
- TeaM Sual Corporation - Philippines
- SMC Global Power, Philippines
- PTC India Limited - India
- Cement Manufacturers Association - India
- Semirara Mining Corp, Philippines
- Siam City Cement - Thailand
- Sakthi Sugars Limited - India
- Mercuria Energy - Indonesia
- Romanian Commodities Exchange
- Ceylon Electricity Board - Sri Lanka
- MS Steel International - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Central Electricity Authority - India
- Bhatia International Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
- Coastal Gujarat Power Limited - India
- Salva Resources Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- ASAPP Information Group - India
- Chettinad Cement Corporation Ltd - India
- GVK Power & Infra Limited - India
- Kartika Selabumi Mining - Indonesia
- Orica Australia Pty. Ltd.
- Malabar Cements Ltd - India
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Ministry of Mines - Canada
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Star Paper Mills Limited - India
- Africa Commodities Group - South Africa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhoruka Overseas - Indonesia
- Standard Chartered Bank - UAE
- Interocean Group of Companies - India
- London Commodity Brokers - England
- Siam City Cement PLC, Thailand
- Madhucon Powers Ltd - India
- Energy Development Corp, Philippines
- Borneo Indobara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- Barasentosa Lestari - Indonesia
- Edison Trading Spa - Italy
- Formosa Plastics Group - Taiwan
- Sical Logistics Limited - India
- Coalindo Energy - Indonesia
- Makarim & Taira - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Vedanta Resources Plc - India
- Global Coal Blending Company Limited - Australia
- Globalindo Alam Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- Samtan Co., Ltd - South Korea
- Vijayanagar Sugar Pvt Ltd - India
- Minerals Council of Australia
- European Bulk Services B.V. - Netherlands
- Posco Energy - South Korea
- Gujarat Sidhee Cement - India
- Parry Sugars Refinery, India
- White Energy Company Limited
- Sojitz Corporation - Japan
- Mjunction Services Limited - India
- Simpson Spence & Young - Indonesia
- Marubeni Corporation - India
- Ambuja Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- McConnell Dowell - Australia
- Global Green Power PLC Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Port Waratah Coal Services - Australia
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Bukit Baiduri Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Ministry of Transport, Egypt
- Ind-Barath Power Infra Limited - India
- Sree Jayajothi Cements Limited - India
- LBH Netherlands Bv - Netherlands
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- India Bulls Power Limited - India
- Commonwealth Bank - Australia
- Economic Council, Georgia
- OPG Power Generation Pvt Ltd - India
- Dalmia Cement Bharat India
- Medco Energi Mining Internasional
- Timah Investasi Mineral - Indoneisa
- Mintek Dendrill Indonesia
- Grasim Industreis Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- Eastern Coal Council - USA
- Sarangani Energy Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- New Zealand Coal & Carbon
- Power Finance Corporation Ltd., India
- Australian Commodity Traders Exchange
- The University of Queensland
- Tata Chemicals Ltd - India
- Georgia Ports Authority, United States
- Merrill Lynch Commodities Europe
- The State Trading Corporation of India Ltd
- Straits Asia Resources Limited - Singapore
- Anglo American - United Kingdom
- Indogreen Group - Indonesia
- Aditya Birla Group - India
- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Gujarat Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- Petron Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Electricity Generating Authority of Thailand
- PowerSource Philippines DevCo
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- AsiaOL BioFuels Corp., Philippines
- PetroVietnam Power Coal Import and Supply Company
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Indo Tambangraya Megah - Indonesia
- Indian Oil Corporation Limited
- Kideco Jaya Agung - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bukit Makmur.PT - Indonesia
- Latin American Coal - Colombia
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Chamber of Mines of South Africa
- Savvy Resources Ltd - HongKong
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Altura Mining Limited, Indonesia
- Australian Coal Association
- Larsen & Toubro Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Trasteel International SA, Italy
- Meenaskhi Energy Private Limited - India
- Therma Luzon, Inc, Philippines
- Energy Link Ltd, New Zealand
- Heidelberg Cement - Germany
- Attock Cement Pakistan Limited
- Carbofer General Trading SA - India
- The Treasury - Australian Government
- Jaiprakash Power Ventures ltd
- Manunggal Multi Energi - Indonesia
- South Luzon Thermal Energy Corporation
- IEA Clean Coal Centre - UK
- Wood Mackenzie - Singapore
- Singapore Mercantile Exchange
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- Renaissance Capital - South Africa
- ICICI Bank Limited - India
- Lanco Infratech Ltd - India
- Kaltim Prima Coal - Indonesia
- Thiess Contractors Indonesia
- Meralco Power Generation, Philippines
- VISA Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Metalloyd Limited - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
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