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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, 29 September 14
INDONESIAN COAL EXPORT VOLUME FALL IN AUGUST
COALspot.com: Indonesia, one of the world's largest coal producers and the global leading multi grade coal exporter shipped around $1.50 ...
Monday, 29 September 14
INDONESIAN COAL SWAPS LOST WEEK ON WEEK AND MONTH OVER MONTH
COALspot.com: Indonesian coal swaps for average November 2014 flat day on day and lost US$ 0.85 (-1.66%) per mt week on week. The swap also lost US ...
Monday, 29 September 14
CFR SOUTH CHINA COAL LOST AROUND 5% MONTH ON MONTH
COALspot.com: API 8 CFR South China Coal swap for delivery in November 2014 decreased US$ 3.55 (-5.10%) month over month and flat week over week.
...
Sunday, 28 September 14
FREIGHT RATES FROM INDONESIA TO INDIA IS EXPECTED TO BE FIRM NEXT WEEK - CAPT. REDDY
COALspot.com: The freight market shows a bit weak trend this week.
The BDI was lost 2.42% week on week and closed at 1049 points on 26 Se ...
Sunday, 28 September 14
BERAU AGREES DEAL WITH GOVT, MINING AREA REDUCED - THE JAKARTA POST
Coal miner PT Berau Coal, a subsidiary of Jakarta-listed PT Berau Coal Energy (BRAU), has signed a memorandum of understanding (MoU) with the gover ...
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- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Vedanta Resources Plc - India
- ASAPP Information Group - India
- Metalloyd Limited - United Kingdom
- Jaiprakash Power Ventures ltd
- Globalindo Alam Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- London Commodity Brokers - England
- Karaikal Port Pvt Ltd - India
- Planning Commission, India
- Essar Steel Hazira Ltd - India
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Altura Mining Limited, Indonesia
- Edison Trading Spa - Italy
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rio Tinto Coal - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indian Oil Corporation Limited
- Videocon Industries ltd - India
- Grasim Industreis Ltd - India
- Larsen & Toubro Limited - India
- Timah Investasi Mineral - Indoneisa
- Sakthi Sugars Limited - India
- Renaissance Capital - South Africa
- Gujarat Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Maharashtra Electricity Regulatory Commission - India
- Vizag Seaport Private Limited - India
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement PLC, Thailand
- Tata Chemicals Ltd - India
- Manunggal Multi Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sarangani Energy Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- CNBM International Corporation - China
- SMG Consultants - Indonesia
- Australian Commodity Traders Exchange
- Bukit Baiduri Energy - Indonesia
- Bharathi Cement Corporation - India
- McConnell Dowell - Australia
- The University of Queensland
- Oldendorff Carriers - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- European Bulk Services B.V. - Netherlands
- Eastern Energy - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Kalimantan Lumbung Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Deloitte Consulting - India
- Billiton Holdings Pty Ltd - Australia
- Tamil Nadu electricity Board
- Singapore Mercantile Exchange
- Bhoruka Overseas - Indonesia
- Indian Energy Exchange, India
- Uttam Galva Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Savvy Resources Ltd - HongKong
- Asmin Koalindo Tuhup - Indonesia
- Electricity Generating Authority of Thailand
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- PTC India Limited - India
- Energy Development Corp, Philippines
- India Bulls Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Posco Energy - South Korea
- Star Paper Mills Limited - India
- Ministry of Transport, Egypt
- Goldman Sachs - Singapore
- Sree Jayajothi Cements Limited - India
- Price Waterhouse Coopers - Russia
- Samtan Co., Ltd - South Korea
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- AsiaOL BioFuels Corp., Philippines
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- Therma Luzon, Inc, Philippines
- GMR Energy Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- MS Steel International - UAE
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Independent Power Producers Association of India
- Thai Mozambique Logistica
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Mines - Canada
- Georgia Ports Authority, United States
- Attock Cement Pakistan Limited
- Miang Besar Coal Terminal - Indonesia
- Cement Manufacturers Association - India
- GVK Power & Infra Limited - India
- Latin American Coal - Colombia
- Bulk Trading Sa - Switzerland
- ICICI Bank Limited - India
- Coal and Oil Company - UAE
- Sindya Power Generating Company Private Ltd
- Barasentosa Lestari - Indonesia
- Indogreen Group - Indonesia
- GAC Shipping (India) Pvt Ltd
- VISA Power Limited - India
- Bukit Makmur.PT - Indonesia
- Baramulti Group, Indonesia
- TeaM Sual Corporation - Philippines
- Merrill Lynch Commodities Europe
- The Treasury - Australian Government
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- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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- Vijayanagar Sugar Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Anglo American - United Kingdom
- Aboitiz Power Corporation - Philippines
- Orica Australia Pty. Ltd.
- Kideco Jaya Agung - Indonesia
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- Bhatia International Limited - India
- Central Electricity Authority - India
- Thiess Contractors Indonesia
- Makarim & Taira - Indonesia
- Madhucon Powers Ltd - India
- PowerSource Philippines DevCo
- Semirara Mining and Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Trasteel International SA, Italy
- Simpson Spence & Young - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Energy Link Ltd, New Zealand
- Marubeni Corporation - India
- IHS Mccloskey Coal Group - USA
- Binh Thuan Hamico - Vietnam
- Sical Logistics Limited - India
- White Energy Company Limited
- Riau Bara Harum - Indonesia
- Romanian Commodities Exchange
- Semirara Mining Corp, Philippines
- Economic Council, Georgia
- Bahari Cakrawala Sebuku - Indonesia
- Mercuria Energy - Indonesia
- Standard Chartered Bank - UAE
- Straits Asia Resources Limited - Singapore
- Antam Resourcindo - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Eastern Coal Council - USA
- Rashtriya Ispat Nigam Limited - India
- Kartika Selabumi Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Commonwealth Bank - Australia
- Minerals Council of Australia
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- SMC Global Power, Philippines
- Formosa Plastics Group - Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Bhushan Steel Limited - India
- Sinarmas Energy and Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Bangladesh Power Developement Board
- Medco Energi Mining Internasional
- New Zealand Coal & Carbon
- Malabar Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- Indonesian Coal Mining Association
- Port Waratah Coal Services - Australia
- Kumho Petrochemical, South Korea
- Global Coal Blending Company Limited - Australia
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- Parry Sugars Refinery, India
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Interocean Group of Companies - India
- Jindal Steel & Power Ltd - India
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Iligan Light & Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Australian Coal Association
- Coastal Gujarat Power Limited - India
- Heidelberg Cement - Germany
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Wood Mackenzie - Singapore
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
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