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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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Tuesday, 07 October 14
API 8 CFR SOUTH CHINA COAL SWAP HEADED SOUTH
COALspot.com: API 8 CFR South China Coal swap for delivery in November 2014 decreased US$ 1.10 (-1.64%) month over month and US$ 0.25 (-0.38%) ...
Monday, 06 October 14
' COAL-BY-WIRE' FROM SUMATRA TO JAVA - THE JAKARTA POST
Coal from the island of Sumatra accounts for most of Indonesia’s low-grade lignite, a low-quality coal that receives a poor price in internat ...
Monday, 06 October 14
THE IRON ORE SHIPPING BUSINESS IS FACING SOME ROUGH SEAS - EAST ASIA FORUM
The impact of Chinese demand on global iron ore prices is well known. A less acknowledged consequence of China’s emergence is the transformat ...
Sunday, 05 October 14
BALTIC DRY INDEX SLIPS 1.14%; BALTIC PANAMAX INDEX GAINED 9.91% WEEK ON WEEK
COALspot.com: The BDI was down by 1.14 pct and closed at 1037 points this Friday.
The Cape index was down significantly week on week or lost 5 ...
Friday, 03 October 14
U.S. WEEKLY COAL PRODUCTION UP 5.8% TO 19.9 MMST
COALspot.com – United States the world's one of largest coal producers, produced approximately 19.9 million short tons (mmst) of co ...
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- GAC Shipping (India) Pvt Ltd
- Binh Thuan Hamico - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Vijayanagar Sugar Pvt Ltd - India
- New Zealand Coal & Carbon
- Gujarat Mineral Development Corp Ltd - India
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Intertek Mineral Services - Indonesia
- Singapore Mercantile Exchange
- ASAPP Information Group - India
- Africa Commodities Group - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mercator Lines Limited - India
- Australian Commodity Traders Exchange
- Kapuas Tunggal Persada - Indonesia
- Global Green Power PLC Corporation, Philippines
- Semirara Mining Corp, Philippines
- Simpson Spence & Young - Indonesia
- Salva Resources Pvt Ltd - India
- Ministry of Transport, Egypt
- Ind-Barath Power Infra Limited - India
- Georgia Ports Authority, United States
- Miang Besar Coal Terminal - Indonesia
- Tamil Nadu electricity Board
- Sakthi Sugars Limited - India
- Eastern Energy - Thailand
- Posco Energy - South Korea
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wilmar Investment Holdings
- Jindal Steel & Power Ltd - India
- Sical Logistics Limited - India
- Medco Energi Mining Internasional
- Orica Mining Services - Indonesia
- The University of Queensland
- OPG Power Generation Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Aditya Birla Group - India
- Malabar Cements Ltd - India
- Orica Australia Pty. Ltd.
- Indian Oil Corporation Limited
- Global Coal Blending Company Limited - Australia
- Heidelberg Cement - Germany
- TeaM Sual Corporation - Philippines
- Oldendorff Carriers - Singapore
- Uttam Galva Steels Limited - India
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Australian Coal Association
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Energy Development Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- Economic Council, Georgia
- Savvy Resources Ltd - HongKong
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bharathi Cement Corporation - India
- Coalindo Energy - Indonesia
- GMR Energy Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Ambuja Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Global Business Power Corporation, Philippines
- Anglo American - United Kingdom
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Iligan Light & Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Vedanta Resources Plc - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Makmur.PT - Indonesia
- Thai Mozambique Logistica
- Barasentosa Lestari - Indonesia
- Indonesian Coal Mining Association
- Altura Mining Limited, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Standard Chartered Bank - UAE
- CNBM International Corporation - China
- Manunggal Multi Energi - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Parliament of New Zealand
- AsiaOL BioFuels Corp., Philippines
- Wood Mackenzie - Singapore
- Dalmia Cement Bharat India
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Jaiprakash Power Ventures ltd
- Sojitz Corporation - Japan
- Indika Energy - Indonesia
- Xindia Steels Limited - India
- GVK Power & Infra Limited - India
- Commonwealth Bank - Australia
- Lanco Infratech Ltd - India
- Planning Commission, India
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Interocean Group of Companies - India
- Sindya Power Generating Company Private Ltd
- Eastern Coal Council - USA
- Star Paper Mills Limited - India
- Coal and Oil Company - UAE
- Ceylon Electricity Board - Sri Lanka
- Sree Jayajothi Cements Limited - India
- Central Java Power - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- Toyota Tsusho Corporation, Japan
- Krishnapatnam Port Company Ltd. - India
- Port Waratah Coal Services - Australia
- Maheswari Brothers Coal Limited - India
- Timah Investasi Mineral - Indoneisa
- Directorate Of Revenue Intelligence - India
- Makarim & Taira - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- Indogreen Group - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Siam City Cement PLC, Thailand
- Meenaskhi Energy Private Limited - India
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Semirara Mining and Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Central Electricity Authority - India
- Kohat Cement Company Ltd. - Pakistan
- Meralco Power Generation, Philippines
- Bukit Baiduri Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- McConnell Dowell - Australia
- Coastal Gujarat Power Limited - India
- Larsen & Toubro Limited - India
- Agrawal Coal Company - India
- Gujarat Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Deloitte Consulting - India
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Goldman Sachs - Singapore
- London Commodity Brokers - England
- Therma Luzon, Inc, Philippines
- Bhushan Steel Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- IEA Clean Coal Centre - UK
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- European Bulk Services B.V. - Netherlands
- South Luzon Thermal Energy Corporation
- India Bulls Power Limited - India
- Parry Sugars Refinery, India
- Romanian Commodities Exchange
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- Mercuria Energy - Indonesia
- Electricity Authority, New Zealand
- Bukit Asam (Persero) Tbk - Indonesia
- Mjunction Services Limited - India
- Billiton Holdings Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- SMC Global Power, Philippines
- Power Finance Corporation Ltd., India
- Grasim Industreis Ltd - India
- Ministry of Finance - Indonesia
- Kartika Selabumi Mining - Indonesia
- Vizag Seaport Private Limited - India
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- Bhoruka Overseas - Indonesia
- IHS Mccloskey Coal Group - USA
- Antam Resourcindo - Indonesia
- Indo Tambangraya Megah - Indonesia
- Riau Bara Harum - Indonesia
- Madhucon Powers Ltd - India
- Siam City Cement - Thailand
- Kepco SPC Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- MS Steel International - UAE
- Essar Steel Hazira Ltd - India
- Merrill Lynch Commodities Europe
- Kalimantan Lumbung Energi - Indonesia
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Bayan Resources Tbk. - Indonesia
- Price Waterhouse Coopers - Russia
- Samtan Co., Ltd - South Korea
- SMG Consultants - Indonesia
- Aboitiz Power Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- PTC India Limited - India
- Renaissance Capital - South Africa
- Attock Cement Pakistan Limited
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- VISA Power Limited - India
- ICICI Bank Limited - India
- PowerSource Philippines DevCo
- Videocon Industries ltd - India
- Formosa Plastics Group - Taiwan
- Carbofer General Trading SA - India
- LBH Netherlands Bv - Netherlands
- Pendopo Energi Batubara - Indonesia
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