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