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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, 22 September 14
CFR SOUTH CHINA COAL SWAPS LOST ON DAY, WEEK AND MONTH
COALspot.com: API 8 CFR South China Coal swap for delivery in October 2014 decreased US$ 3.10 (-4.50%) month over month and $ 0.95 PT MT week over ...
Monday, 22 September 14
INDONESIAN COAL SWAPS LOST WEEK ON WEEK AND MONTH OVER MONTH
COALspot.com: Indonesian coal swaps for average October 2014 increased US$ 0.35 (+0.69%) day on day and lost US$ 0.30 (-0.58%) per mt week on week. ...
Sunday, 21 September 14
CAPE INDEX LOST 17% W-O-W ; BALTIC DRY PLUNGES 106 POINTS
COALspot.com: This week the freight market softened a bit compared to last week.
BDI fell 8.97% week on week and closed BDI at 1075 points on ...
Friday, 19 September 14
U.S. WEEKLY COAL PRODUCTION RELATIVELY FLAT AT +0.1% - EIA
COALspot.com – United States the world's second largest coal producer, produced approximately 19.20 million short tons (mmst) of coal in ...
Friday, 19 September 14
PRICES FOR DRY BULK CARRIERS HAVEN'T CORRECTED ENOUGH, DESPITE LOWER THAN EXPECTED FREIGHT RATES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A lot has been said and written about the looming dry bulk market recovery over the past few months. However, even if this hasn’t been materi ...
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- Mercator Lines Limited - India
- Aditya Birla Group - India
- Simpson Spence & Young - Indonesia
- European Bulk Services B.V. - Netherlands
- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Samtan Co., Ltd - South Korea
- Deloitte Consulting - India
- Ind-Barath Power Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Meenaskhi Energy Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Uttam Galva Steels Limited - India
- Global Green Power PLC Corporation, Philippines
- Australian Commodity Traders Exchange
- Standard Chartered Bank - UAE
- Ministry of Finance - Indonesia
- Port Waratah Coal Services - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Energy Development Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Salva Resources Pvt Ltd - India
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- Carbofer General Trading SA - India
- Global Coal Blending Company Limited - Australia
- Essar Steel Hazira Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Thiess Contractors Indonesia
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- GMR Energy Limited - India
- Indonesian Coal Mining Association
- Coalindo Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Indogreen Group - Indonesia
- ICICI Bank Limited - India
- Alfred C Toepfer International GmbH - Germany
- Miang Besar Coal Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Africa Commodities Group - South Africa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Tamil Nadu electricity Board
- SMG Consultants - Indonesia
- Bhatia International Limited - India
- Videocon Industries ltd - India
- Toyota Tsusho Corporation, Japan
- Renaissance Capital - South Africa
- Manunggal Multi Energi - Indonesia
- Metalloyd Limited - United Kingdom
- Power Finance Corporation Ltd., India
- Gujarat Electricity Regulatory Commission - India
- Petron Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- Energy Link Ltd, New Zealand
- Georgia Ports Authority, United States
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- PetroVietnam Power Coal Import and Supply Company
- Parliament of New Zealand
- Grasim Industreis Ltd - India
- Australian Coal Association
- Billiton Holdings Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Binh Thuan Hamico - Vietnam
- Meralco Power Generation, Philippines
- Sojitz Corporation - Japan
- Altura Mining Limited, Indonesia
- Borneo Indobara - Indonesia
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- Malabar Cements Ltd - India
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Edison Trading Spa - Italy
- South Luzon Thermal Energy Corporation
- London Commodity Brokers - England
- Sakthi Sugars Limited - India
- Wood Mackenzie - Singapore
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Kaltim Prima Coal - Indonesia
- Indika Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Vedanta Resources Plc - India
- SN Aboitiz Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Ministry of Mines - Canada
- Orica Australia Pty. Ltd.
- Minerals Council of Australia
- Electricity Generating Authority of Thailand
- Gujarat Mineral Development Corp Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Ministry of Transport, Egypt
- Mercuria Energy - Indonesia
- Electricity Authority, New Zealand
- Planning Commission, India
- Eastern Coal Council - USA
- Heidelberg Cement - Germany
- Price Waterhouse Coopers - Russia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PTC India Limited - India
- Mjunction Services Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Barasentosa Lestari - Indonesia
- Sical Logistics Limited - India
- GVK Power & Infra Limited - India
- Xindia Steels Limited - India
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- Interocean Group of Companies - India
- The State Trading Corporation of India Ltd
- Gujarat Sidhee Cement - India
- Parry Sugars Refinery, India
- Eastern Energy - Thailand
- TeaM Sual Corporation - Philippines
- Therma Luzon, Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Singapore Mercantile Exchange
- Commonwealth Bank - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Cement Manufacturers Association - India
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- Bulk Trading Sa - Switzerland
- Lanco Infratech Ltd - India
- Kartika Selabumi Mining - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Marubeni Corporation - India
- IHS Mccloskey Coal Group - USA
- Directorate General of MIneral and Coal - Indonesia
- IEA Clean Coal Centre - UK
- Pipit Mutiara Jaya. PT, Indonesia
- PowerSource Philippines DevCo
- Dalmia Cement Bharat India
- MS Steel International - UAE
- Aboitiz Power Corporation - Philippines
- Economic Council, Georgia
- Goldman Sachs - Singapore
- Antam Resourcindo - Indonesia
- Merrill Lynch Commodities Europe
- Leighton Contractors Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- Savvy Resources Ltd - HongKong
- Thai Mozambique Logistica
- ASAPP Information Group - India
- Makarim & Taira - Indonesia
- Intertek Mineral Services - Indonesia
- Independent Power Producers Association of India
- Anglo American - United Kingdom
- Kumho Petrochemical, South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining Corp, Philippines
- Pendopo Energi Batubara - Indonesia
- Indian Oil Corporation Limited
- Karbindo Abesyapradhi - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Posco Energy - South Korea
- SMC Global Power, Philippines
- Mintek Dendrill Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bharathi Cement Corporation - India
- Krishnapatnam Port Company Ltd. - India
- Neyveli Lignite Corporation Ltd, - India
- Riau Bara Harum - Indonesia
- Attock Cement Pakistan Limited
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- CNBM International Corporation - China
- Tata Chemicals Ltd - India
- Orica Mining Services - Indonesia
- New Zealand Coal & Carbon
- OPG Power Generation Pvt Ltd - India
- Trasteel International SA, Italy
- Jorong Barutama Greston.PT - Indonesia
- Bhushan Steel Limited - India
- Indian Energy Exchange, India
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Larsen & Toubro Limited - India
- Romanian Commodities Exchange
- Central Electricity Authority - India
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- McConnell Dowell - Australia
- Sarangani Energy Corporation, Philippines
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- GAC Shipping (India) Pvt Ltd
- The University of Queensland
- AsiaOL BioFuels Corp., Philippines
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- Kobexindo Tractors - Indoneisa
- Chamber of Mines of South Africa
- Cigading International Bulk Terminal - Indonesia
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