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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 $3.11 on November 11, 2014. Regression analysis on the price data yields an 80% correlation between falling prices and a tightening spread”.
Mcquilling concluded that “the relative price level at which these current contangos exist does fit the criteria for considering storage plays. In the 2009 super-contango, the curve first flattened before moving into steep contango. Once the bottom was put in 1Q 2009, the back of the curve strengthened and storage plays moved in-the-money. Over the past five months, both benchmarks have lost approximately 35% of their value. If demand is perceived to improve after the bottom of the sell-off is put in, a similar strengthening of the back of the curve may emerge making floating storage plays feasible again. While floating storage is not economically feasible based on the current contangos in Brent and WTI, floating storage may be in play if one-year VLCC time charter rates remain at current levels and the Brent curve stiffens as a result of perceived future demand growth or supply constraints. It is unlikely that the WTI contango will yield a strong case for floating storage due to the isolationist nature of the US crude oil supply market. The price polarity between Brent and WTI further proves the point that not all contangos are created equal”, the analysis concluded.
Source: Nikos Roussanoglou, Hellenic Shipping News
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Thursday, 20 November 14
HANDY: INDO ROUNDS ARE BEING FIXED IN REGION OF US$ 10K - FEARNLEYS
Handy
In the Atlantic we have experienced firmer rates this week much lead by the grain activity out of USG. Vsls open in the USG can achieve in ...
Thursday, 20 November 14
DEMAND FOR DRY BULK CARRIERS INCREASES ON THE BACK OF HEIGHTENED FREIGHT RATE MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners are looking to take advantage of favorable market conditions through the acquisition of more dry bulk carriers. According to shipbroker ...
Wednesday, 19 November 14
INDONESIA FUEL-PRICE RISE A CLEAR, POSITIVE REFORM SIGNAL - FITCH
COALspot.com: Indonesia's hike of more than 30% in administered fuel prices, announced on 17 November, provides a clear, positive signal of the ...
Wednesday, 19 November 14
CAPES WERE UNDER PRESSURE; LOST 20% WITHIN A WEEK
COALspot.com: " The negative environment in which the week prior ended, marked this past week as well, which closed off on Friday noting the f ...
Wednesday, 19 November 14
SHIPPING MARKET INSIGHT - BY KATERINA RESTIS
The current Ebola outbreak in West Africa has been declared as a worldwide health emergency by the World Health Organization and has had a great im ...
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- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Formosa Plastics Group - Taiwan
- Energy Development Corp, Philippines
- SMG Consultants - Indonesia
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- Electricity Generating Authority of Thailand
- Alfred C Toepfer International GmbH - Germany
- Kalimantan Lumbung Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- GMR Energy Limited - India
- White Energy Company Limited
- Therma Luzon, Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indo Tambangraya Megah - Indonesia
- Uttam Galva Steels Limited - India
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Borneo Indobara - Indonesia
- Energy Link Ltd, New Zealand
- Maheswari Brothers Coal Limited - India
- European Bulk Services B.V. - Netherlands
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Semirara Mining Corp, Philippines
- Binh Thuan Hamico - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- Power Finance Corporation Ltd., India
- Indika Energy - Indonesia
- Eastern Coal Council - USA
- Mercator Lines Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- CNBM International Corporation - China
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Videocon Industries ltd - India
- Ambuja Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Mines - Canada
- Gujarat Mineral Development Corp Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Kartika Selabumi Mining - Indonesia
- Samtan Co., Ltd - South Korea
- Karbindo Abesyapradhi - Indoneisa
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- Directorate Of Revenue Intelligence - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bharathi Cement Corporation - India
- Makarim & Taira - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Bahari Cakrawala Sebuku - Indonesia
- GVK Power & Infra Limited - India
- Jindal Steel & Power Ltd - India
- The State Trading Corporation of India Ltd
- PNOC Exploration Corporation - Philippines
- Aditya Birla Group - India
- Global Business Power Corporation, Philippines
- Siam City Cement - Thailand
- Antam Resourcindo - Indonesia
- VISA Power Limited - India
- Siam City Cement PLC, Thailand
- PTC India Limited - India
- Bulk Trading Sa - Switzerland
- Jorong Barutama Greston.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Electricity Authority, New Zealand
- Coastal Gujarat Power Limited - India
- Sinarmas Energy and Mining - Indonesia
- Kideco Jaya Agung - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Cement Manufacturers Association - India
- Vijayanagar Sugar Pvt Ltd - India
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- Mercuria Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Xindia Steels Limited - India
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- Renaissance Capital - South Africa
- Parliament of New Zealand
- Kaltim Prima Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Planning Commission, India
- San Jose City I Power Corp, Philippines
- Sical Logistics Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Simpson Spence & Young - Indonesia
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Thiess Contractors Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bhushan Steel Limited - India
- Thai Mozambique Logistica
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Madhucon Powers Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Coal and Oil Company - UAE
- Heidelberg Cement - Germany
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Parry Sugars Refinery, India
- Wilmar Investment Holdings
- Sarangani Energy Corporation, Philippines
- New Zealand Coal & Carbon
- Ind-Barath Power Infra Limited - India
- IEA Clean Coal Centre - UK
- Ministry of Transport, Egypt
- Semirara Mining and Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Timah Investasi Mineral - Indoneisa
- Indian Energy Exchange, India
- Sindya Power Generating Company Private Ltd
- Global Coal Blending Company Limited - Australia
- Mintek Dendrill Indonesia
- Wood Mackenzie - Singapore
- SMC Global Power, Philippines
- Karaikal Port Pvt Ltd - India
- Mjunction Services Limited - India
- Petron Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- Independent Power Producers Association of India
- Maharashtra Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Interocean Group of Companies - India
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Indian Oil Corporation Limited
- Sakthi Sugars Limited - India
- Bayan Resources Tbk. - Indonesia
- Kepco SPC Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Finance - Indonesia
- Eastern Energy - Thailand
- Central Electricity Authority - India
- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- Lanco Infratech Ltd - India
- Romanian Commodities Exchange
- Grasim Industreis Ltd - India
- Deloitte Consulting - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Tamil Nadu electricity Board
- Indogreen Group - Indonesia
- Coalindo Energy - Indonesia
- ASAPP Information Group - India
- Global Green Power PLC Corporation, Philippines
- Savvy Resources Ltd - HongKong
- South Luzon Thermal Energy Corporation
- LBH Netherlands Bv - Netherlands
- Metalloyd Limited - United Kingdom
- Jaiprakash Power Ventures ltd
- Intertek Mineral Services - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Economic Council, Georgia
- Orica Australia Pty. Ltd.
- The Treasury - Australian Government
- Oldendorff Carriers - Singapore
- Africa Commodities Group - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Malabar Cements Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Bhatia International Limited - India
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- Salva Resources Pvt Ltd - India
- Bangladesh Power Developement Board
- Medco Energi Mining Internasional
- Altura Mining Limited, Indonesia
- McConnell Dowell - Australia
- Marubeni Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ICICI Bank Limited - India
- Gujarat Sidhee Cement - India
- Essar Steel Hazira Ltd - India
- Banpu Public Company Limited - Thailand
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- The University of Queensland
- Star Paper Mills Limited - India
- Meralco Power Generation, Philippines
- Australian Coal Association
- Singapore Mercantile Exchange
- Edison Trading Spa - Italy
- Indonesian Coal Mining Association
- Kapuas Tunggal Persada - Indonesia
- GAC Shipping (India) Pvt Ltd
- Vizag Seaport Private Limited - India
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
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