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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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Thursday, 25 September 14
LACK OF COAL BUSINESS PUSHING DOWN PANAMAX EARNINGS IN PACIFIC
Handy
In the Atlantic we see rates steady climbing upwards. More coal cargoes out of USG and USEC are helping the TA market which is up some USD ...
Wednesday, 24 September 14
ADARO AGREED TO REDUCE ITS CONCESSION AREA TO 31,379.8 HECTARES
COALspot.com: PT Adaro Energy Tbk (Adaro Energy) today announced that, PT Adaro Indonesia (AI), its wholly owned subsidiary, entered into a M ...
Wednesday, 24 September 14
CAPESIZE: ACTIVITY IN BOTH BASINS WAS UNIMPRESSIVE
COALspot.com: The end of the week prior seems to have marked the tone for the days that followed, with the Dry Bulk market giving up a significant ...
Tuesday, 23 September 14
MEDCO TO INCREASE ITS COAL PRODUCTION NEXT YEAR
COALspot.com: PT Medco Energi Internasional is looking to increase its coal production next year, supported by the launch of operations at its Duta ...
Monday, 22 September 14
COAL SECTOR CHAOS - GENESIS TO REVELATION - DIPESH DIPU
COALspot.com: “Let there be light”, intends the government of India but the fuel side of the story paints a blackout. The recent Suprem ...
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- SMG Consultants - Indonesia
- Formosa Plastics Group - Taiwan
- The Treasury - Australian Government
- Aboitiz Power Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Australian Commodity Traders Exchange
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Bulk Trading Sa - Switzerland
- SN Aboitiz Power Inc, Philippines
- Uttam Galva Steels Limited - India
- Marubeni Corporation - India
- MS Steel International - UAE
- Sree Jayajothi Cements Limited - India
- Kalimantan Lumbung Energi - Indonesia
- ICICI Bank Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karaikal Port Pvt Ltd - India
- Independent Power Producers Association of India
- GVK Power & Infra Limited - India
- Sical Logistics Limited - India
- Bukit Makmur.PT - Indonesia
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- Romanian Commodities Exchange
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Gujarat Sidhee Cement - India
- CNBM International Corporation - China
- Thiess Contractors Indonesia
- Ministry of Finance - Indonesia
- LBH Netherlands Bv - Netherlands
- Tata Chemicals Ltd - India
- Georgia Ports Authority, United States
- Holcim Trading Pte Ltd - Singapore
- Aditya Birla Group - India
- Power Finance Corporation Ltd., India
- Heidelberg Cement - Germany
- Gujarat Mineral Development Corp Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Ind-Barath Power Infra Limited - India
- Kartika Selabumi Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Krishnapatnam Port Company Ltd. - India
- Sarangani Energy Corporation, Philippines
- Indian Oil Corporation Limited
- Kaltim Prima Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- Sinarmas Energy and Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Grasim Industreis Ltd - India
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- Ministry of Transport, Egypt
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Australian Coal Association
- Essar Steel Hazira Ltd - India
- Kepco SPC Power Corporation, Philippines
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Sakthi Sugars Limited - India
- Standard Chartered Bank - UAE
- GAC Shipping (India) Pvt Ltd
- SMC Global Power, Philippines
- Riau Bara Harum - Indonesia
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Intertek Mineral Services - Indonesia
- ASAPP Information Group - India
- GN Power Mariveles Coal Plant, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Bahari Cakrawala Sebuku - Indonesia
- Kumho Petrochemical, South Korea
- Central Electricity Authority - India
- Manunggal Multi Energi - Indonesia
- Africa Commodities Group - South Africa
- Rio Tinto Coal - Australia
- PowerSource Philippines DevCo
- Commonwealth Bank - Australia
- Indika Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- VISA Power Limited - India
- Interocean Group of Companies - India
- Deloitte Consulting - India
- Chamber of Mines of South Africa
- Eastern Coal Council - USA
- Posco Energy - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- Larsen & Toubro Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Kobexindo Tractors - Indoneisa
- Bukit Baiduri Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Bhatia International Limited - India
- Edison Trading Spa - Italy
- Alfred C Toepfer International GmbH - Germany
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bharathi Cement Corporation - India
- Mercuria Energy - Indonesia
- White Energy Company Limited
- Dalmia Cement Bharat India
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- Agrawal Coal Company - India
- Attock Cement Pakistan Limited
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Makarim & Taira - Indonesia
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Ambuja Cements Ltd - India
- Medco Energi Mining Internasional
- Meenaskhi Energy Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Coastal Gujarat Power Limited - India
- PTC India Limited - India
- India Bulls Power Limited - India
- IEA Clean Coal Centre - UK
- Altura Mining Limited, Indonesia
- Carbofer General Trading SA - India
- Indian Energy Exchange, India
- Port Waratah Coal Services - Australia
- Sojitz Corporation - Japan
- Coalindo Energy - Indonesia
- Trasteel International SA, Italy
- Jindal Steel & Power Ltd - India
- CIMB Investment Bank - Malaysia
- Meralco Power Generation, Philippines
- Malabar Cements Ltd - India
- Borneo Indobara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Baramulti Group, Indonesia
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- Energy Link Ltd, New Zealand
- Lanco Infratech Ltd - India
- Renaissance Capital - South Africa
- Kideco Jaya Agung - Indonesia
- Siam City Cement PLC, Thailand
- IHS Mccloskey Coal Group - USA
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- Vedanta Resources Plc - India
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- Eastern Energy - Thailand
- Wood Mackenzie - Singapore
- Iligan Light & Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Globalindo Alam Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bhushan Steel Limited - India
- Indogreen Group - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Latin American Coal - Colombia
- Orica Australia Pty. Ltd.
- Toyota Tsusho Corporation, Japan
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Neyveli Lignite Corporation Ltd, - India
- Kohat Cement Company Ltd. - Pakistan
- Global Business Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Banpu Public Company Limited - Thailand
- Bhoruka Overseas - Indonesia
- Minerals Council of Australia
- Mercator Lines Limited - India
- Ceylon Electricity Board - Sri Lanka
- European Bulk Services B.V. - Netherlands
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- New Zealand Coal & Carbon
- Semirara Mining Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Wilmar Investment Holdings
- Ministry of Mines - Canada
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- Directorate Of Revenue Intelligence - India
- Timah Investasi Mineral - Indoneisa
- Global Coal Blending Company Limited - Australia
- Global Green Power PLC Corporation, Philippines
- Electricity Generating Authority of Thailand
- Jorong Barutama Greston.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Central Java Power - Indonesia
- Cement Manufacturers Association - India
- Chettinad Cement Corporation Ltd - India
- Salva Resources Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Thai Mozambique Logistica
- Indo Tambangraya Megah - Indonesia
- Madhucon Powers Ltd - India
- International Coal Ventures Pvt Ltd - India
- Siam City Cement - Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bangladesh Power Developement Board
- Planning Commission, India
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