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