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