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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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Saturday, 22 November 14
THE FALL IN BUNKER PRICES REDUCE FUEL COSTS SIGNIFICANTLY - BIMCO, PETER SAND
For a ship that burns 24 tonnes of fuel per day while steaming, fuel costs are reduced by as much as USD 1 million a year if current price level st ...
Saturday, 22 November 14
DRY BULKERS NEWBUILDING DELIVERIES REACHED 11.8 MILLION DWT DURING THIRD QUARTER, NET FLEET GROWTH FOR 2014 TO REACH 5% - HELLENIC SHIPPING NEWS
The dry bulk market has rebounded since its less than impressive performance since the start of the year, but overall, third quarter figures could ...
Friday, 21 November 14
BUMI ENTERS INTO CONDITIONAL SALE & PURCHASE AGREEMENT TO SELL FBS STAKE
COALspot.com: PT Bumi Resources Tbk, one of the Indonesia's largest coal producers confirms that it has executed a Conditional Sale and Purchas ...
Friday, 21 November 14
U.S LAST WEEK'S COAL PRODUCTION STAYS FLAT W-O-W
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.9 million short tons (mmst) of coal ...
Thursday, 20 November 14
MOST MAJOR ASIAN ECONOMIES TO BENEFIT FROM LOWER OIL - FITCH
COALspot.com: The 25% drop in the price of oil since July is likely to lift economic growth prospects, improve terms of trade, and have a pot ...
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- Independent Power Producers Association of India
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- Romanian Commodities Exchange
- Coastal Gujarat Power Limited - India
- Carbofer General Trading SA - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
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- Indogreen Group - Indonesia
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- India Bulls Power Limited - India
- Dalmia Cement Bharat India
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
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- Merrill Lynch Commodities Europe
- The Treasury - Australian Government
- Planning Commission, India
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- Global Coal Blending Company Limited - Australia
- Alfred C Toepfer International GmbH - Germany
- Larsen & Toubro Limited - India
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- Formosa Plastics Group - Taiwan
- Altura Mining Limited, Indonesia
- Iligan Light & Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Finance - Indonesia
- Grasim Industreis Ltd - India
- Ministry of Mines - Canada
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Indonesian Coal Mining Association
- Georgia Ports Authority, United States
- Cement Manufacturers Association - India
- Riau Bara Harum - Indonesia
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- CIMB Investment Bank - Malaysia
- Madhucon Powers Ltd - India
- Eastern Energy - Thailand
- Mercator Lines Limited - India
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- Gujarat Sidhee Cement - India
- Indian Oil Corporation Limited
- TeaM Sual Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- VISA Power Limited - India
- Meenaskhi Energy Private Limited - India
- Ambuja Cements Ltd - India
- Bharathi Cement Corporation - India
- Australian Coal Association
- Electricity Authority, New Zealand
- Bukit Makmur.PT - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Thai Mozambique Logistica
- ASAPP Information Group - India
- Australian Commodity Traders Exchange
- Interocean Group of Companies - India
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- Toyota Tsusho Corporation, Japan
- SMC Global Power, Philippines
- AsiaOL BioFuels Corp., Philippines
- Directorate Of Revenue Intelligence - India
- Samtan Co., Ltd - South Korea
- Uttam Galva Steels Limited - India
- Bhushan Steel Limited - India
- PTC India Limited - India
- Bangladesh Power Developement Board
- Agrawal Coal Company - India
- Baramulti Group, Indonesia
- Posco Energy - South Korea
- Meralco Power Generation, Philippines
- Savvy Resources Ltd - HongKong
- Indika Energy - Indonesia
- Thiess Contractors Indonesia
- Ceylon Electricity Board - Sri Lanka
- New Zealand Coal & Carbon
- ICICI Bank Limited - India
- White Energy Company Limited
- European Bulk Services B.V. - Netherlands
- Kartika Selabumi Mining - Indonesia
- Siam City Cement - Thailand
- Goldman Sachs - Singapore
- Videocon Industries ltd - India
- McConnell Dowell - Australia
- Sojitz Corporation - Japan
- Petrochimia International Co. Ltd.- Taiwan
- PowerSource Philippines DevCo
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- Power Finance Corporation Ltd., India
- Jaiprakash Power Ventures ltd
- GVK Power & Infra Limited - India
- Mintek Dendrill Indonesia
- Wood Mackenzie - Singapore
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- Chettinad Cement Corporation Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Development Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Medco Energi Mining Internasional
- Mercuria Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Port Waratah Coal Services - Australia
- IHS Mccloskey Coal Group - USA
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- Africa Commodities Group - South Africa
- Bhoruka Overseas - Indonesia
- Chamber of Mines of South Africa
- Price Waterhouse Coopers - Russia
- Global Business Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Xindia Steels Limited - India
- Kobexindo Tractors - Indoneisa
- Bulk Trading Sa - Switzerland
- The University of Queensland
- Indo Tambangraya Megah - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- London Commodity Brokers - England
- Sakthi Sugars Limited - India
- Krishnapatnam Port Company Ltd. - India
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- Sarangani Energy Corporation, Philippines
- Borneo Indobara - Indonesia
- Coalindo Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Deloitte Consulting - India
- Commonwealth Bank - Australia
- Karaikal Port Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Star Paper Mills Limited - India
- Edison Trading Spa - Italy
- Timah Investasi Mineral - Indoneisa
- Minerals Council of Australia
- Vedanta Resources Plc - India
- Rashtriya Ispat Nigam Limited - India
- Banpu Public Company Limited - Thailand
- MS Steel International - UAE
- Indian Energy Exchange, India
- Holcim Trading Pte Ltd - Singapore
- Petron Corporation, Philippines
- Mjunction Services Limited - India
- PNOC Exploration Corporation - Philippines
- Renaissance Capital - South Africa
- Siam City Cement PLC, Thailand
- Energy Link Ltd, New Zealand
- Ministry of Transport, Egypt
- Cigading International Bulk Terminal - Indonesia
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- CNBM International Corporation - China
- Kohat Cement Company Ltd. - Pakistan
- IEA Clean Coal Centre - UK
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Anglo American - United Kingdom
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
- Standard Chartered Bank - UAE
- Parliament of New Zealand
- The State Trading Corporation of India Ltd
- GMR Energy Limited - India
- Therma Luzon, Inc, Philippines
- Metalloyd Limited - United Kingdom
- South Luzon Thermal Energy Corporation
- Miang Besar Coal Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining and Power Corporation, Philippines
- SMG Consultants - Indonesia
- Rio Tinto Coal - Australia
- Aditya Birla Group - India
- Trasteel International SA, Italy
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Bhatia International Limited - India
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Economic Council, Georgia
- Heidelberg Cement - Germany
- Orica Mining Services - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Sree Jayajothi Cements Limited - India
- Bayan Resources Tbk. - Indonesia
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- Central Java Power - Indonesia
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- PetroVietnam Power Coal Import and Supply Company
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- Global Green Power PLC Corporation, Philippines
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- Wilmar Investment Holdings
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