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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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Sunday, 24 August 14
SEA FREIGHT MARKETS STARTING TO LOOK POSITIVE; CAPES DRIVE FREIGHTS HIGHER
COALspot.com: The freight market has strengthen further this week with BDI up 7.19 pct week on week. The BDI was closed at 1,088 points while the B ...
Friday, 22 August 14
INDIAN IRON ORE ROYALTY RISE NOT LIKELY TO HURT STEELMAKERS' MARGINS - FITCH
Fitch Ratings does not expect an increase in India's iron ore royalty rates to have a major impact on the profitability of steel producers in t ...
Friday, 22 August 14
ARBITRATION CLAUSE IN LOU HELD TO REPLACE CHARTERPARTY ARBITRATION CLAUSE
KNOWLEDGE TO ELEVATE
The Claimants had claims for cargo damage against the vessel Owners arising under four bills of lading. The vessel was th ...
Friday, 22 August 14
ICAP ENERGY LAUNCHES GLOBAL COKING COAL DERIVATIVES TRADING
First contract completed and cleared on CME
COALspot.com: ICAP Energy, the energy business of ICAP plc, announces today that it has successful ...
Friday, 22 August 14
U.S WEEKLY COAL PRODUCTION UP 2.4% WEEK OVER WEEK
COALspot.com – United States the world's second largest coal producer, produced approximately 19.60 million short tons (mmst) of coal in ...
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- Aditya Birla Group - India
- Holcim Trading Pte Ltd - Singapore
- Thai Mozambique Logistica
- Coal and Oil Company - UAE
- PTC India Limited - India
- Makarim & Taira - Indonesia
- Africa Commodities Group - South Africa
- Bhoruka Overseas - Indonesia
- VISA Power Limited - India
- CIMB Investment Bank - Malaysia
- Marubeni Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Orica Mining Services - Indonesia
- Indika Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Star Paper Mills Limited - India
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- Bhatia International Limited - India
- Ministry of Transport, Egypt
- GVK Power & Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- London Commodity Brokers - England
- Meralco Power Generation, Philippines
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- Siam City Cement PLC, Thailand
- Globalindo Alam Lestari - Indonesia
- OPG Power Generation Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- India Bulls Power Limited - India
- McConnell Dowell - Australia
- Minerals Council of Australia
- Kumho Petrochemical, South Korea
- Baramulti Group, Indonesia
- Merrill Lynch Commodities Europe
- Agrawal Coal Company - India
- Latin American Coal - Colombia
- Parliament of New Zealand
- Meenaskhi Energy Private Limited - India
- Banpu Public Company Limited - Thailand
- Iligan Light & Power Inc, Philippines
- Bangladesh Power Developement Board
- Cigading International Bulk Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Sarangani Energy Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Cement Manufacturers Association - India
- Ind-Barath Power Infra Limited - India
- Vedanta Resources Plc - India
- Formosa Plastics Group - Taiwan
- PowerSource Philippines DevCo
- Barasentosa Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Eastern Energy - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Port Waratah Coal Services - Australia
- The University of Queensland
- Larsen & Toubro Limited - India
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- International Coal Ventures Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Metalloyd Limited - United Kingdom
- Mjunction Services Limited - India
- Bulk Trading Sa - Switzerland
- San Jose City I Power Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Kepco SPC Power Corporation, Philippines
- Carbofer General Trading SA - India
- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Malabar Cements Ltd - India
- Altura Mining Limited, Indonesia
- Sakthi Sugars Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Attock Cement Pakistan Limited
- Miang Besar Coal Terminal - Indonesia
- Kideco Jaya Agung - Indonesia
- Bukit Baiduri Energy - Indonesia
- Australian Coal Association
- Eastern Coal Council - USA
- Indian Energy Exchange, India
- Electricity Generating Authority of Thailand
- Timah Investasi Mineral - Indoneisa
- Interocean Group of Companies - India
- IEA Clean Coal Centre - UK
- PetroVietnam Power Coal Import and Supply Company
- Riau Bara Harum - Indonesia
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Krishnapatnam Port Company Ltd. - India
- CNBM International Corporation - China
- Power Finance Corporation Ltd., India
- Indogreen Group - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Pendopo Energi Batubara - Indonesia
- Binh Thuan Hamico - Vietnam
- Sojitz Corporation - Japan
- Siam City Cement - Thailand
- PNOC Exploration Corporation - Philippines
- Tata Chemicals Ltd - India
- Ministry of Finance - Indonesia
- Videocon Industries ltd - India
- Georgia Ports Authority, United States
- TNB Fuel Sdn Bhd - Malaysia
- The State Trading Corporation of India Ltd
- New Zealand Coal & Carbon
- Kapuas Tunggal Persada - Indonesia
- Samtan Co., Ltd - South Korea
- Coastal Gujarat Power Limited - India
- Wood Mackenzie - Singapore
- Kaltim Prima Coal - Indonesia
- Medco Energi Mining Internasional
- Rio Tinto Coal - Australia
- Australian Commodity Traders Exchange
- Bahari Cakrawala Sebuku - Indonesia
- Borneo Indobara - Indonesia
- ICICI Bank Limited - India
- Essar Steel Hazira Ltd - India
- Manunggal Multi Energi - Indonesia
- Goldman Sachs - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Thiess Contractors Indonesia
- SN Aboitiz Power Inc, Philippines
- Coalindo Energy - Indonesia
- Indonesian Coal Mining Association
- Bukit Asam (Persero) Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Madhucon Powers Ltd - India
- Central Java Power - Indonesia
- Kobexindo Tractors - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Therma Luzon, Inc, Philippines
- White Energy Company Limited
- Xindia Steels Limited - India
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Gujarat Sidhee Cement - India
- European Bulk Services B.V. - Netherlands
- Independent Power Producers Association of India
- Singapore Mercantile Exchange
- Kartika Selabumi Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Romanian Commodities Exchange
- Bayan Resources Tbk. - Indonesia
- Lanco Infratech Ltd - India
- Price Waterhouse Coopers - Russia
- Semirara Mining Corp, Philippines
- ASAPP Information Group - India
- Maharashtra Electricity Regulatory Commission - India
- Toyota Tsusho Corporation, Japan
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- Savvy Resources Ltd - HongKong
- Salva Resources Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercuria Energy - Indonesia
- Trasteel International SA, Italy
- Heidelberg Cement - Germany
- Bharathi Cement Corporation - India
- Ambuja Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Dalmia Cement Bharat India
- SMG Consultants - Indonesia
- Bhushan Steel Limited - India
- Electricity Authority, New Zealand
- Bukit Makmur.PT - Indonesia
- Wilmar Investment Holdings
- Vijayanagar Sugar Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Chamber of Mines of South Africa
- Parry Sugars Refinery, India
- GMR Energy Limited - India
- Rashtriya Ispat Nigam Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sical Logistics Limited - India
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- Maheswari Brothers Coal Limited - India
- Uttam Galva Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Leighton Contractors Pty Ltd - Australia
- MS Steel International - UAE
- Posco Energy - South Korea
- Energy Link Ltd, New Zealand
- Economic Council, Georgia
- Grasim Industreis Ltd - India
- Global Coal Blending Company Limited - Australia
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- Planning Commission, India
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Oldendorff Carriers - Singapore
- Edison Trading Spa - Italy
- Jorong Barutama Greston.PT - Indonesia
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