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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, 30 August 14
RECOVERY IN SIGHT FOR THE DRY BULK SHIPPING MARKET - DREWRY SHIPPING CONSULTANTS
Despite weak freight rates so far this year, Dry Bulk shipping earnings are forecast to recover as demand for both major and minor bulk commodities ...
Friday, 29 August 14
U.S. WEEKLY COAL PRODUCTION DROPS 1.3 PERCENT, EIA SAYS
COALspot.com – United States the world's second largest coal producer, produced approximately 19.40 million short tons (mmst) of coal in ...
Friday, 29 August 14
ADARO'S PROFITS SINK FURTHER AMID FALL IN COAL PRICES - JP
Adaro Energy, one of the country’s largest coal miners, has reported a 31 percent drop in net profit in the first half of this year as global ...
Friday, 29 August 14
CHINESE LIGNITE IMPORTS: QUANTITY OVER QUALITY? - CLARKSONS
In the first half of 2014, Chinese seaborne coal imports declined 0.4% y-o-y to 148mt, largely reflecting a 3.3% fall in imports of steam coal. Mea ...
Thursday, 28 August 14
PANAMAX: OWNERS CAN GET AROUND USD 16000 FOR A FRONTHAUL; PERIOD MARKET - VERY QUIET - FEARNLEYS
Handy
The activity and sentiment is improving in the Atlantic with the general TA rate is up about US$ 800 w-o-w. We see more South American carg ...
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- PetroVietnam Power Coal Import and Supply Company
- The University of Queensland
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- Bhushan Steel Limited - India
- Port Waratah Coal Services - Australia
- Siam City Cement PLC, Thailand
- Indika Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Thai Mozambique Logistica
- Planning Commission, India
- Semirara Mining Corp, Philippines
- Chamber of Mines of South Africa
- Jaiprakash Power Ventures ltd
- LBH Netherlands Bv - Netherlands
- New Zealand Coal & Carbon
- Altura Mining Limited, Indonesia
- Meenaskhi Energy Private Limited - India
- CNBM International Corporation - China
- TNB Fuel Sdn Bhd - Malaysia
- Mintek Dendrill Indonesia
- Goldman Sachs - Singapore
- Borneo Indobara - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Latin American Coal - Colombia
- Minerals Council of Australia
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- MS Steel International - UAE
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- Renaissance Capital - South Africa
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- TeaM Sual Corporation - Philippines
- Sojitz Corporation - Japan
- Parry Sugars Refinery, India
- Ceylon Electricity Board - Sri Lanka
- South Luzon Thermal Energy Corporation
- Orica Australia Pty. Ltd.
- Mercator Lines Limited - India
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- Coalindo Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Rio Tinto Coal - Australia
- ICICI Bank Limited - India
- Iligan Light & Power Inc, Philippines
- Bangladesh Power Developement Board
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Larsen & Toubro Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Jindal Steel & Power Ltd - India
- Star Paper Mills Limited - India
- Baramulti Group, Indonesia
- Deloitte Consulting - India
- Globalindo Alam Lestari - Indonesia
- Interocean Group of Companies - India
- Neyveli Lignite Corporation Ltd, - India
- GMR Energy Limited - India
- Parliament of New Zealand
- Thiess Contractors Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bharathi Cement Corporation - India
- Kalimantan Lumbung Energi - Indonesia
- Australian Commodity Traders Exchange
- Singapore Mercantile Exchange
- Makarim & Taira - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Intertek Mineral Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Lanco Infratech Ltd - India
- Pendopo Energi Batubara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Eastern Coal Council - USA
- European Bulk Services B.V. - Netherlands
- Ambuja Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Salva Resources Pvt Ltd - India
- Heidelberg Cement - Germany
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Bank of Tokyo Mitsubishi UFJ Ltd
- Antam Resourcindo - Indonesia
- PowerSource Philippines DevCo
- Bukit Baiduri Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- Orica Mining Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vizag Seaport Private Limited - India
- Medco Energi Mining Internasional
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Central Electricity Authority - India
- Anglo American - United Kingdom
- Merrill Lynch Commodities Europe
- Madhucon Powers Ltd - India
- San Jose City I Power Corp, Philippines
- Agrawal Coal Company - India
- Bhatia International Limited - India
- Energy Link Ltd, New Zealand
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Indian Oil Corporation Limited
- Commonwealth Bank - Australia
- Posco Energy - South Korea
- CIMB Investment Bank - Malaysia
- Miang Besar Coal Terminal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Mjunction Services Limited - India
- SN Aboitiz Power Inc, Philippines
- Electricity Authority, New Zealand
- The State Trading Corporation of India Ltd
- Indonesian Coal Mining Association
- Kobexindo Tractors - Indoneisa
- Gujarat Sidhee Cement - India
- Gujarat Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate Of Revenue Intelligence - India
- Barasentosa Lestari - Indonesia
- Attock Cement Pakistan Limited
- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- Kepco SPC Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- White Energy Company Limited
- SMG Consultants - Indonesia
- Power Finance Corporation Ltd., India
- Aditya Birla Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- India Bulls Power Limited - India
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- Sakthi Sugars Limited - India
- Vedanta Resources Plc - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Binh Thuan Hamico - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- Wilmar Investment Holdings
- Dalmia Cement Bharat India
- Bukit Makmur.PT - Indonesia
- Riau Bara Harum - Indonesia
- Kideco Jaya Agung - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- ASAPP Information Group - India
- Indian Energy Exchange, India
- Coastal Gujarat Power Limited - India
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- Economic Council, Georgia
- Leighton Contractors Pty Ltd - Australia
- Grasim Industreis Ltd - India
- Sical Logistics Limited - India
- Global Green Power PLC Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Ministry of Transport, Egypt
- Indogreen Group - Indonesia
- International Coal Ventures Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Oldendorff Carriers - Singapore
- Kaltim Prima Coal - Indonesia
- Tamil Nadu electricity Board
- PNOC Exploration Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Xindia Steels Limited - India
- SMC Global Power, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- Cement Manufacturers Association - India
- VISA Power Limited - India
- Carbofer General Trading SA - India
- IEA Clean Coal Centre - UK
- Sree Jayajothi Cements Limited - India
- Alfred C Toepfer International GmbH - Germany
- Toyota Tsusho Corporation, Japan
- Asmin Koalindo Tuhup - Indonesia
- Therma Luzon, Inc, Philippines
- Manunggal Multi Energi - Indonesia
- GVK Power & Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Vijayanagar Sugar Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Standard Chartered Bank - UAE
- Petron Corporation, Philippines
- Kumho Petrochemical, South Korea
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Ministry of Finance - Indonesia
- Siam City Cement - Thailand
- Videocon Industries ltd - India
- Australian Coal Association
- Electricity Generating Authority of Thailand
- McConnell Dowell - Australia
- Simpson Spence & Young - Indonesia
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