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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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- Thiess Contractors Indonesia
- San Jose City I Power Corp, Philippines
- Australian Commodity Traders Exchange
- Oldendorff Carriers - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Sakthi Sugars Limited - India
- Standard Chartered Bank - UAE
- Simpson Spence & Young - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- TeaM Sual Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Kobexindo Tractors - Indoneisa
- Eastern Energy - Thailand
- Gujarat Sidhee Cement - India
- Billiton Holdings Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Meralco Power Generation, Philippines
- Cement Manufacturers Association - India
- MS Steel International - UAE
- Deloitte Consulting - India
- Singapore Mercantile Exchange
- Videocon Industries ltd - India
- Salva Resources Pvt Ltd - India
- Africa Commodities Group - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Antam Resourcindo - Indonesia
- Merrill Lynch Commodities Europe
- Karbindo Abesyapradhi - Indoneisa
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Ceylon Electricity Board - Sri Lanka
- London Commodity Brokers - England
- Thai Mozambique Logistica
- Malabar Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Borneo Indobara - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kumho Petrochemical, South Korea
- Medco Energi Mining Internasional
- Goldman Sachs - Singapore
- Siam City Cement PLC, Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- Bukit Baiduri Energy - Indonesia
- Anglo American - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Latin American Coal - Colombia
- Globalindo Alam Lestari - Indonesia
- Makarim & Taira - Indonesia
- Independent Power Producers Association of India
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Meenaskhi Energy Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Petrochimia International Co. Ltd.- Taiwan
- Trasteel International SA, Italy
- Mintek Dendrill Indonesia
- Larsen & Toubro Limited - India
- GMR Energy Limited - India
- Rashtriya Ispat Nigam Limited - India
- Intertek Mineral Services - Indonesia
- Kartika Selabumi Mining - Indonesia
- Altura Mining Limited, Indonesia
- Power Finance Corporation Ltd., India
- Planning Commission, India
- Dalmia Cement Bharat India
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- Renaissance Capital - South Africa
- SN Aboitiz Power Inc, Philippines
- Commonwealth Bank - Australia
- Global Green Power PLC Corporation, Philippines
- White Energy Company Limited
- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- Jindal Steel & Power Ltd - India
- Baramulti Group, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Edison Trading Spa - Italy
- Bulk Trading Sa - Switzerland
- Madhucon Powers Ltd - India
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- Xindia Steels Limited - India
- Wood Mackenzie - Singapore
- Krishnapatnam Port Company Ltd. - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- Indika Energy - Indonesia
- Ambuja Cements Ltd - India
- Rio Tinto Coal - Australia
- CNBM International Corporation - China
- Vijayanagar Sugar Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Parry Sugars Refinery, India
- Formosa Plastics Group - Taiwan
- Sinarmas Energy and Mining - Indonesia
- Ministry of Transport, Egypt
- The University of Queensland
- Jaiprakash Power Ventures ltd
- ASAPP Information Group - India
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- Samtan Co., Ltd - South Korea
- Grasim Industreis Ltd - India
- Global Coal Blending Company Limited - Australia
- International Coal Ventures Pvt Ltd - India
- Attock Cement Pakistan Limited
- Chamber of Mines of South Africa
- Bhushan Steel Limited - India
- Iligan Light & Power Inc, Philippines
- Sical Logistics Limited - India
- Tata Chemicals Ltd - India
- Posco Energy - South Korea
- Port Waratah Coal Services - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Mines - Canada
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Holcim Trading Pte Ltd - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Development Corp, Philippines
- Orica Mining Services - Indonesia
- SMC Global Power, Philippines
- Tamil Nadu electricity Board
- Binh Thuan Hamico - Vietnam
- Romanian Commodities Exchange
- Indian Energy Exchange, India
- Pipit Mutiara Jaya. PT, Indonesia
- GVK Power & Infra Limited - India
- Coalindo Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Bahari Cakrawala Sebuku - Indonesia
- Electricity Generating Authority of Thailand
- Minerals Council of Australia
- Wilmar Investment Holdings
- Kideco Jaya Agung - Indonesia
- Heidelberg Cement - Germany
- Ind-Barath Power Infra Limited - India
- Vizag Seaport Private Limited - India
- Star Paper Mills Limited - India
- Vedanta Resources Plc - India
- Bhatia International Limited - India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- PTC India Limited - India
- Maheswari Brothers Coal Limited - India
- Uttam Galva Steels Limited - India
- Georgia Ports Authority, United States
- Bhoruka Overseas - Indonesia
- SMG Consultants - Indonesia
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- Mercator Lines Limited - India
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- CIMB Investment Bank - Malaysia
- Petron Corporation, Philippines
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- McConnell Dowell - Australia
- PowerSource Philippines DevCo
- Coal and Oil Company - UAE
- Bukit Makmur.PT - Indonesia
- Agrawal Coal Company - India
- Kalimantan Lumbung Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- IEA Clean Coal Centre - UK
- Cigading International Bulk Terminal - Indonesia
- Electricity Authority, New Zealand
- Indian Oil Corporation Limited
- OPG Power Generation Pvt Ltd - India
- VISA Power Limited - India
- Karaikal Port Pvt Ltd - India
- Indogreen Group - Indonesia
- India Bulls Power Limited - India
- Bangladesh Power Developement Board
- Lanco Infratech Ltd - India
- Indo Tambangraya Megah - Indonesia
- Mercuria Energy - Indonesia
- Semirara Mining Corp, Philippines
- Indonesian Coal Mining Association
- Price Waterhouse Coopers - Russia
- GN Power Mariveles Coal Plant, Philippines
- Central Electricity Authority - India
- Mjunction Services Limited - India
- Siam City Cement - Thailand
- Ministry of Finance - Indonesia
- ICICI Bank Limited - India
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Kepco SPC Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Orica Australia Pty. Ltd.
- Straits Asia Resources Limited - Singapore
- Energy Link Ltd, New Zealand
- Australian Coal Association
- New Zealand Coal & Carbon
- PNOC Exploration Corporation - Philippines
- The Treasury - Australian Government
- Aditya Birla Group - India
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
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