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