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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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Wednesday, 03 September 14
CFR S.CHINA COAL SWAP FOR JAN 2015 DELIVERY CLOSED AT $ 68.30 PMT; DOWN 2.43% W-O-W
COALspot.com: API 8 CFR South China Coal swap for delivery in October 2014 decreased US$ 0.95 (-1.39%) day on day and US$ 1.40 (-2.03%) week on wee ...
Tuesday, 02 September 14
BERAU COAL HAS AWARDED A CONTRACT EXTENSION TO BUMA FOR 647 MLN BCM OVERBURDEN REMOVAL
COALspot.com: PT Delta Dunia Makmur Tbk (“DOID”) has announced that its primary operating subsidiary, PT Bukit Makmur Mandiri Utama (&l ...
Monday, 01 September 14
GLOBALCOAL WELCOMES TWO NEW MARKET MEMBERS
COALspot.com: globalCOAL® announced today that two Market Members have joined its trading community. Both new Market Members are from the India ...
Sunday, 31 August 14
COAL FREIGHT RATES INTO INDIA FROM INDONESIA FIRM
COALspot.com: The freight market continued to firm this week. BDI up 5.42 percent week ended 29 August and closed at 1147 points while the Ca ...
Saturday, 30 August 14
INDIAN GOVERNMENT SHOULD TAKE NOTICE: THERMAL COAL IMPORT PRICES EXTREMELY LOW - COMMODORE RESEARCH
COALspot.com: Both Indonesian and Australian thermal coal prices are at the lowest levels seen this decade, with Indonesia's monthly benchmark ...
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- Antam Resourcindo - Indonesia
- Commonwealth Bank - Australia
- White Energy Company Limited
- Asmin Koalindo Tuhup - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Orica Australia Pty. Ltd.
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Mercuria Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- Ambuja Cements Ltd - India
- Wilmar Investment Holdings
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- OPG Power Generation Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Directorate Of Revenue Intelligence - India
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Singapore Mercantile Exchange
- Maheswari Brothers Coal Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- Salva Resources Pvt Ltd - India
- Indonesian Coal Mining Association
- Economic Council, Georgia
- Uttam Galva Steels Limited - India
- Electricity Authority, New Zealand
- Riau Bara Harum - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Wood Mackenzie - Singapore
- Siam City Cement PLC, Thailand
- Therma Luzon, Inc, Philippines
- Medco Energi Mining Internasional
- Eastern Coal Council - USA
- Sindya Power Generating Company Private Ltd
- Chamber of Mines of South Africa
- Krishnapatnam Port Company Ltd. - India
- Sakthi Sugars Limited - India
- Bulk Trading Sa - Switzerland
- Central Java Power - Indonesia
- LBH Netherlands Bv - Netherlands
- GMR Energy Limited - India
- Interocean Group of Companies - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Vedanta Resources Plc - India
- Bhoruka Overseas - Indonesia
- Independent Power Producers Association of India
- Pendopo Energi Batubara - Indonesia
- Aboitiz Power Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Jorong Barutama Greston.PT - Indonesia
- Madhucon Powers Ltd - India
- Parry Sugars Refinery, India
- Central Electricity Authority - India
- Gujarat Sidhee Cement - India
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- Energy Link Ltd, New Zealand
- Mercator Lines Limited - India
- Indo Tambangraya Megah - Indonesia
- San Jose City I Power Corp, Philippines
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Global Green Power PLC Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Thai Mozambique Logistica
- Planning Commission, India
- Kumho Petrochemical, South Korea
- Ministry of Mines - Canada
- Ministry of Transport, Egypt
- Meenaskhi Energy Private Limited - India
- India Bulls Power Limited - India
- Latin American Coal - Colombia
- McConnell Dowell - Australia
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Sinarmas Energy and Mining - Indonesia
- Australian Commodity Traders Exchange
- Posco Energy - South Korea
- Globalindo Alam Lestari - Indonesia
- Bhushan Steel Limited - India
- Coal and Oil Company - UAE
- Carbofer General Trading SA - India
- The State Trading Corporation of India Ltd
- Standard Chartered Bank - UAE
- Straits Asia Resources Limited - Singapore
- New Zealand Coal & Carbon
- SMG Consultants - Indonesia
- Aditya Birla Group - India
- Anglo American - United Kingdom
- Indian Oil Corporation Limited
- Agrawal Coal Company - India
- Bayan Resources Tbk. - Indonesia
- MS Steel International - UAE
- Marubeni Corporation - India
- GVK Power & Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Larsen & Toubro Limited - India
- Oldendorff Carriers - Singapore
- The University of Queensland
- Bharathi Cement Corporation - India
- Port Waratah Coal Services - Australia
- Miang Besar Coal Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- IEA Clean Coal Centre - UK
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Deloitte Consulting - India
- Star Paper Mills Limited - India
- Minerals Council of Australia
- Sojitz Corporation - Japan
- Essar Steel Hazira Ltd - India
- Cement Manufacturers Association - India
- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- Indika Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Ind-Barath Power Infra Limited - India
- Kobexindo Tractors - Indoneisa
- Metalloyd Limited - United Kingdom
- Vizag Seaport Private Limited - India
- PowerSource Philippines DevCo
- Ministry of Finance - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Business Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Heidelberg Cement - Germany
- Rashtriya Ispat Nigam Limited - India
- Goldman Sachs - Singapore
- Mjunction Services Limited - India
- CNBM International Corporation - China
- Binh Thuan Hamico - Vietnam
- Australian Coal Association
- Billiton Holdings Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Leighton Contractors Pty Ltd - Australia
- Thiess Contractors Indonesia
- Kideco Jaya Agung - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement - Thailand
- Makarim & Taira - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Intertek Mineral Services - Indonesia
- Eastern Energy - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Georgia Ports Authority, United States
- Kepco SPC Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Kartika Selabumi Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Lanco Infratech Ltd - India
- Videocon Industries ltd - India
- London Commodity Brokers - England
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Baramulti Group, Indonesia
- Africa Commodities Group - South Africa
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Offshore Bulk Terminal Pte Ltd, Singapore
- GN Power Mariveles Coal Plant, Philippines
- International Coal Ventures Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Energy Development Corp, Philippines
- Coastal Gujarat Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Power Finance Corporation Ltd., India
- Coalindo Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Borneo Indobara - Indonesia
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
- Indogreen Group - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Savvy Resources Ltd - HongKong
- Xindia Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Tata Chemicals Ltd - India
- Petron Corporation, Philippines
- ASAPP Information Group - India
- PNOC Exploration Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- The Treasury - Australian Government
- AsiaOL BioFuels Corp., Philippines
- Toyota Tsusho Corporation, Japan
- Formosa Plastics Group - Taiwan
- SMC Global Power, Philippines
- Rio Tinto Coal - Australia
- Price Waterhouse Coopers - Russia
- Karaikal Port Pvt Ltd - India
- Dalmia Cement Bharat India
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Edison Trading Spa - Italy
- ICICI Bank Limited - India
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Trasteel International SA, Italy
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