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Saturday, 06 December 14
TANKER FLOATING STORAGE PLAYS COULD COME INTO PLAY IF VLCC RATES STAY AT CURRENT LEVEL - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Contango: A phenomenon in commodities futures price curves where the delivery price of a futures contract is greater than the current price. With that definition out of the way, it’s worth taking a look at potential tanker storage plays in the light of the latest demise of oil prices, one not seen after the super-contango on both the Brent and West Texas Intermediate (WTI) forward curves of the 2008 markets’ crash. According to a recent report from Mcquilling Services, “ubiquitous bullish sentiment developed as the price bottom was established and the contango steepened. Both onshore and offshore storage plays were profitable during the super-contango of 2009 as the depth of the curve left plenty of profit potential”.
Mcquilling had looked into contango plays at the end of September. As it states, “when the first note was released, the Brent front month futures contract was trading at US $97.63 and WTI was trading at US $91.70, in the upper range of a multi-year rally. During this time, the Brent curve had moved into contango producing a flurry of speculation about the formation’s bullish effect, which led crude oil stakeholders to scrutinize the market for storage opportunities. Since the release of the first note, both Brent and WTI have experienced steep price declines. Comparing the 2009 and September 2014 contangos illustrates a couple of key conditions that were absent in the September contango. The first and most important consideration is the depth of the contango. In 2009, the forward curve was steep enough to cover associated storage and carrying costs. A storage play could have been implemented in 2009 based purely off the market contango regardless of future price direction. Crude oil could have been purchased in the spot market and simultaneously sold in the futures market at a profit. The September 2014 contango did not provide enough future premiums to hedge the exposure at a profit”, said Mcquilling.
It added that “second, the price level at which a contango forms is a critical consideration. In 2009, the contango took shape after a meaningful sell-off as markets recovered from the 2008 economic collapse. As the global economy recovered, so did crude oil demand. From the bottom of the collapse, abundant upside potential encouraged traders to consider storage plays. In contrast, the September 2014 contango formed towards the top of a multi-year price range amidst a period of oversupply and decreasing demand. As global crude oil production outpaced demand, crude oil surpluses amassed and Brent and WTI prices fell. An unhedged storage play implemented in September would have yielded extremely poor results. Both Brent and WTI have continued to weaken since September as a result of the global oversupply of crude oil. On November 27, 2014, the Organization of Petroleum Exporting Countries (OPEC) members met to debate whether to cut production to steady prices or to maintain production output to marginalize US shale production. OPEC decided to maintain its production ceiling for 2015 forcing Brent and WTI to the lowest price levels since July 2009. Both Brent and WTI are now in contango and, if history repeats itself, traders will be looking for storage opportunities. By applying the lessons learned from the September contango, we evaluate the current contangos to determine if floating storage plays make sense under current market conditions”, it noted.
Carrying Cost Assumptions
European Interest Rate Blend: 1.88%/yr
VLCC Capacity: 2,000,000 barrels
VLCC One-year Time Charter: US $31,500/day
Price of Crude: US $70.00/barrel
Total Carrying Cost One-year Time Charter: US $0.58 per barrel month
According to Mcquilling’s analysis “neither Brent nor WTI are presently showing enough of a future premium to front month prices to justify implementing a floating storage play. We assume the average blended cost per VLCC on a one-year time charter at US $31,500/day. The cost of carry per barrel per month utilizing a one-year time charter amounts to US $0.58 per barrel month. WTI has been trading at a sharp discount to Brent this year because of increased North American production and decreasing foreign imports. Less US reliance on foreign crudes has created a price polarity between the two benchmarks. December 2016 Brent is trading at a US $8.61 premium to January 2015 while WTI is producing only a US $5.17 premium through the same period. We have been monitoring the Brent/WTI spread since the beginning of the price decline in July and have identified a strong correlation between falling prices and a tightening Brent/WTI Benchmark spread. From a high near US $11 in July, the spread traded down to US $3.11 on November 11, 2014. Regression analysis on the price data yields an 80% correlation between falling prices and a tightening spread”.
Mcquilling concluded that “the relative price level at which these current contangos exist does fit the criteria for considering storage plays. In the 2009 super-contango, the curve first flattened before moving into steep contango. Once the bottom was put in 1Q 2009, the back of the curve strengthened and storage plays moved in-the-money. Over the past five months, both benchmarks have lost approximately 35% of their value. If demand is perceived to improve after the bottom of the sell-off is put in, a similar strengthening of the back of the curve may emerge making floating storage plays feasible again. While floating storage is not economically feasible based on the current contangos in Brent and WTI, floating storage may be in play if one-year VLCC time charter rates remain at current levels and the Brent curve stiffens as a result of perceived future demand growth or supply constraints. It is unlikely that the WTI contango will yield a strong case for floating storage due to the isolationist nature of the US crude oil supply market. The price polarity between Brent and WTI further proves the point that not all contangos are created equal”, the analysis concluded.
Source: Nikos Roussanoglou, Hellenic Shipping News
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Friday, 28 November 14
NEW BIMCO CLAUSE AIMS TO REDUCE SUPPLIERS' RELIANCE ON SHIP ARREST FOR CHARTERERS' UNPAID BUNKERS
KNOWLEDGE TO ELEVATE
Ship owners can, on occasion, find themselves in the invidious position of suffering unexpected loss of hire due to a tim ...
Friday, 28 November 14
JSW ENERGY AND GRM RESOURCES JOIN GLOBALCOAL
COALspot.com: globalCOAL® announced yesterday that two new Market Members have joined its online coal trading platform. According globaCOAL&rsq ...
Thursday, 27 November 14
MINING SERVICES TAX SPIKED BY 233% - BISNIS INDONESIA
COALspot.com: The Energy and Mineral Resources Department of Indonesia said the tax contribution from mining services sector in the 3rd Q 2014 ...
Thursday, 27 November 14
PANAMAX : EXPECTATION'S FOR A STRONG END OF YEAR RUSH, DISAPPEAR DAY BY DAY - FEARNLEYS
Handy
“We have experienced a firming market the last couple of weeks. More activity from cargo owners in the Atlantic and less available to ...
Wednesday, 26 November 14
OVERSUPPLY OF TONNAGE PUSHED PANAMAX SEGMENT DOWN FOR ANOTHER WEEK
COALspot.com: The Dry Bulk market managed to reverse its course from the week prior and with the sole exception of the Panamax segment, we witnesse ...
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- Bhushan Steel Limited - India
- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- Barasentosa Lestari - Indonesia
- South Luzon Thermal Energy Corporation
- Indian Energy Exchange, India
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- Metalloyd Limited - United Kingdom
- Kumho Petrochemical, South Korea
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- Bharathi Cement Corporation - India
- Globalindo Alam Lestari - Indonesia
- European Bulk Services B.V. - Netherlands
- Orica Australia Pty. Ltd.
- Jindal Steel & Power Ltd - India
- Cement Manufacturers Association - India
- Posco Energy - South Korea
- Vedanta Resources Plc - India
- Altura Mining Limited, Indonesia
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Deloitte Consulting - India
- Renaissance Capital - South Africa
- Mjunction Services Limited - India
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Billiton Holdings Pty Ltd - Australia
- Medco Energi Mining Internasional
- TeaM Sual Corporation - Philippines
- Planning Commission, India
- Vizag Seaport Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Port Waratah Coal Services - Australia
- IHS Mccloskey Coal Group - USA
- Attock Cement Pakistan Limited
- Borneo Indobara - Indonesia
- Siam City Cement - Thailand
- Makarim & Taira - Indonesia
- Kapuas Tunggal Persada - Indonesia
- White Energy Company Limited
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- Heidelberg Cement - Germany
- Eastern Energy - Thailand
- Mercuria Energy - Indonesia
- Energy Link Ltd, New Zealand
- Petron Corporation, Philippines
- ASAPP Information Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indo Tambangraya Megah - Indonesia
- Price Waterhouse Coopers - Russia
- The Treasury - Australian Government
- Sindya Power Generating Company Private Ltd
- Uttam Galva Steels Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Authority, New Zealand
- Africa Commodities Group - South Africa
- VISA Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- Coalindo Energy - Indonesia
- Eastern Coal Council - USA
- OPG Power Generation Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Bulk Trading Sa - Switzerland
- Bank of Tokyo Mitsubishi UFJ Ltd
- The State Trading Corporation of India Ltd
- Siam City Cement PLC, Thailand
- Global Green Power PLC Corporation, Philippines
- Bhatia International Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Sarangani Energy Corporation, Philippines
- Singapore Mercantile Exchange
- Rio Tinto Coal - Australia
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Mines - Canada
- Indika Energy - Indonesia
- Thiess Contractors Indonesia
- Goldman Sachs - Singapore
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Formosa Plastics Group - Taiwan
- Ind-Barath Power Infra Limited - India
- Independent Power Producers Association of India
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- Larsen & Toubro Limited - India
- Toyota Tsusho Corporation, Japan
- AsiaOL BioFuels Corp., Philippines
- Sical Logistics Limited - India
- Ministry of Transport, Egypt
- Gujarat Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Standard Chartered Bank - UAE
- Parliament of New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Binh Thuan Hamico - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- Latin American Coal - Colombia
- Straits Asia Resources Limited - Singapore
- Gujarat Sidhee Cement - India
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Orica Mining Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Baramulti Group, Indonesia
- Bangladesh Power Developement Board
- PNOC Exploration Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Oldendorff Carriers - Singapore
- Leighton Contractors Pty Ltd - Australia
- Sojitz Corporation - Japan
- MS Steel International - UAE
- Xindia Steels Limited - India
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Intertek Mineral Services - Indonesia
- PowerSource Philippines DevCo
- Pendopo Energi Batubara - Indonesia
- Interocean Group of Companies - India
- Economic Council, Georgia
- Savvy Resources Ltd - HongKong
- Agrawal Coal Company - India
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- Thai Mozambique Logistica
- SN Aboitiz Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Trasteel International SA, Italy
- Aditya Birla Group - India
- Energy Development Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- The University of Queensland
- Chettinad Cement Corporation Ltd - India
- Lanco Infratech Ltd - India
- Australian Commodity Traders Exchange
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- GVK Power & Infra Limited - India
- Chamber of Mines of South Africa
- Wilmar Investment Holdings
- Kobexindo Tractors - Indoneisa
- Therma Luzon, Inc, Philippines
- Indonesian Coal Mining Association
- Kartika Selabumi Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Parry Sugars Refinery, India
- Grasim Industreis Ltd - India
- India Bulls Power Limited - India
- London Commodity Brokers - England
- Meralco Power Generation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Romanian Commodities Exchange
- Tata Chemicals Ltd - India
- Antam Resourcindo - Indonesia
- Kaltim Prima Coal - Indonesia
- Star Paper Mills Limited - India
- CNBM International Corporation - China
- Bhoruka Overseas - Indonesia
- Sree Jayajothi Cements Limited - India
- Commonwealth Bank - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Indogreen Group - Indonesia
- SMG Consultants - Indonesia
- IEA Clean Coal Centre - UK
- Carbofer General Trading SA - India
- Meenaskhi Energy Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Central Electricity Authority - India
- Jaiprakash Power Ventures ltd
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PTC India Limited - India
- Sakthi Sugars Limited - India
- Karaikal Port Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- McConnell Dowell - Australia
- Manunggal Multi Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Madhucon Powers Ltd - India
- Essar Steel Hazira Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining and Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Mercator Lines Limited - India
- Samtan Co., Ltd - South Korea
- Vijayanagar Sugar Pvt Ltd - India
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