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