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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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Monday, 18 August 14
CFR SOUTH CHINA COAL SWAP PERFORMED WELL THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for delivery in September 2014 increased US$ 0.45 (+0.66%) day on day and US$ 0.30 (+0.44%)&nbs ...
Saturday, 16 August 14
HIGH DEMAND OF IRON ORE SHIPMENTS PUSHED CAPE INDEX UPWARDS
COALspot.com: This week's freight market was buoyant with Cape and panamax index seeing a big jump pushing the BDI above 1,000 points week on c ...
Friday, 15 August 14
5TH ANNUAL POWER AND ELECTRICITY INDONESIA
5TH ANNUAL POWER AND ELECTRICITY INDONESIA
13-16 October 2014
Grand Hyatt Jakarta, Indonesia
Web Site
The country’s definitive ...
Thursday, 14 August 14
U.S. STEAM COAL IMPORTS REMAIN DOWN SHARPLY FROM HISTORIC HIGH IN 2007, SAYS EIA
COALspot.com: U.S. steam coal imports at power plants have fallen significantly from their peak level of more than 30 million tons in 2007 to less ...
Thursday, 14 August 14
INDIA'S PLAN TO START AN INFRASTRUCTURE BOOM AND TO INVEST US$ 1 TRILLION BY 2017 WILL SURELY AFFECT THE DRY BULK TRADE - FEARNLEYS
Handy
The Atlantic Supra market has continued its improving sentiment with rates climbing and TA´s are now up about US$ 900 w-o-w, said Fea ...
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- Altura Mining Limited, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Electricity Generating Authority of Thailand
- Standard Chartered Bank - UAE
- Coal and Oil Company - UAE
- Straits Asia Resources Limited - Singapore
- Manunggal Multi Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Sakthi Sugars Limited - India
- Banpu Public Company Limited - Thailand
- Ind-Barath Power Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- Borneo Indobara - Indonesia
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- OPG Power Generation Pvt Ltd - India
- Central Java Power - Indonesia
- PowerSource Philippines DevCo
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- Kartika Selabumi Mining - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Georgia Ports Authority, United States
- Carbofer General Trading SA - India
- Madhucon Powers Ltd - India
- PTC India Limited - India
- Ceylon Electricity Board - Sri Lanka
- Petrochimia International Co. Ltd.- Taiwan
- Wilmar Investment Holdings
- Karaikal Port Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Cement Manufacturers Association - India
- Vijayanagar Sugar Pvt Ltd - India
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- Attock Cement Pakistan Limited
- San Jose City I Power Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Rashtriya Ispat Nigam Limited - India
- Globalindo Alam Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Metalloyd Limited - United Kingdom
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- Planning Commission, India
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- New Zealand Coal & Carbon
- Binh Thuan Hamico - Vietnam
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- White Energy Company Limited
- Bangladesh Power Developement Board
- GMR Energy Limited - India
- SMC Global Power, Philippines
- Kideco Jaya Agung - Indonesia
- Minerals Council of Australia
- Chettinad Cement Corporation Ltd - India
- Coalindo Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- Renaissance Capital - South Africa
- Directorate General of MIneral and Coal - Indonesia
- Latin American Coal - Colombia
- ICICI Bank Limited - India
- MS Steel International - UAE
- Aditya Birla Group - India
- Asmin Koalindo Tuhup - Indonesia
- Barasentosa Lestari - Indonesia
- Siam City Cement PLC, Thailand
- Xindia Steels Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Salva Resources Pvt Ltd - India
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Commonwealth Bank - Australia
- CNBM International Corporation - China
- Gujarat Electricity Regulatory Commission - India
- Chamber of Mines of South Africa
- Australian Coal Association
- Pendopo Energi Batubara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- Orica Mining Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Holcim Trading Pte Ltd - Singapore
- Larsen & Toubro Limited - India
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Indo Tambangraya Megah - Indonesia
- Sojitz Corporation - Japan
- SN Aboitiz Power Inc, Philippines
- Sical Logistics Limited - India
- Kumho Petrochemical, South Korea
- Kepco SPC Power Corporation, Philippines
- Parry Sugars Refinery, India
- Videocon Industries ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- Ambuja Cements Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Indian Energy Exchange, India
- Global Business Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Parliament of New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PetroVietnam Power Coal Import and Supply Company
- International Coal Ventures Pvt Ltd - India
- Indika Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Independent Power Producers Association of India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Mercator Lines Limited - India
- Directorate Of Revenue Intelligence - India
- Indian Oil Corporation Limited
- Port Waratah Coal Services - Australia
- Malabar Cements Ltd - India
- Africa Commodities Group - South Africa
- Economic Council, Georgia
- India Bulls Power Limited - India
- CIMB Investment Bank - Malaysia
- Grasim Industreis Ltd - India
- Bulk Trading Sa - Switzerland
- Edison Trading Spa - Italy
- Antam Resourcindo - Indonesia
- Ministry of Finance - Indonesia
- Indonesian Coal Mining Association
- Posco Energy - South Korea
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- European Bulk Services B.V. - Netherlands
- Gujarat Sidhee Cement - India
- Bharathi Cement Corporation - India
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- Medco Energi Mining Internasional
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Semirara Mining and Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Ministry of Mines - Canada
- Tamil Nadu electricity Board
- Bhatia International Limited - India
- LBH Netherlands Bv - Netherlands
- Vedanta Resources Plc - India
- Formosa Plastics Group - Taiwan
- Marubeni Corporation - India
- Maheswari Brothers Coal Limited - India
- Meralco Power Generation, Philippines
- Uttam Galva Steels Limited - India
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- ASAPP Information Group - India
- Price Waterhouse Coopers - Russia
- SMG Consultants - Indonesia
- London Commodity Brokers - England
- Vizag Seaport Private Limited - India
- McConnell Dowell - Australia
- The University of Queensland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Jindal Steel & Power Ltd - India
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Lanco Infratech Ltd - India
- Simpson Spence & Young - Indonesia
- The Treasury - Australian Government
- Indogreen Group - Indonesia
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- South Luzon Thermal Energy Corporation
- Kohat Cement Company Ltd. - Pakistan
- Energy Development Corp, Philippines
- Baramulti Group, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- Bahari Cakrawala Sebuku - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Deloitte Consulting - India
- Essar Steel Hazira Ltd - India
- Eastern Energy - Thailand
- Mintek Dendrill Indonesia
- AsiaOL BioFuels Corp., Philippines
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