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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, 18 September 14
INDONESIA'S JULY COAL EXPORT VOLUME DROPPED 5.13% M-O-M
COALspot.com: Indonesia, one of the world's largest coal producer and the global leading multi grade coal exporter shipped around $1.65* ...
Thursday, 18 September 14
PANAMAX : US GULF/CHINA FRONTHAUL ARE NOW PAYING TYPICALLY 14.5K + 450K BB - FEARNRESEARCH
Handy
We still see a firming tendency in the Atlantic and it is still ECSA and USG leading on. USG/Cont now up in about USD 17/18k for a Smax whi ...
Thursday, 18 September 14
ELECTRONIC BILLS OF LADING: A GUIDE TO PAPERLESS TRADING WHICH HAS TAKEN THE SHIPPING INDUSTRY BY STORM
Bimco has recently developed and published a charter party clause that specifically addresses the use of electronic bills of lading. Increasing use ...
Wednesday, 17 September 14
PANAMAX: LIMITED INTEREST IN BOTH BASINS; RISING TONNAGE - INTERMODAL
With the week starting off at a fast pace and with the positive momentum from the previous Friday seemingly sticking around for a bit longer, most ...
Wednesday, 17 September 14
SHIPPING MARKET INSIGHT - GEORGE LAZARIDIS
Since the onslaught of 2013 the rising tide of asset prices had been primarily driven by the increasing freight market conditions and the improving ...
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- Parliament of New Zealand
- Aboitiz Power Corporation - Philippines
- Riau Bara Harum - Indonesia
- Edison Trading Spa - Italy
- Mintek Dendrill Indonesia
- Sarangani Energy Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- Coastal Gujarat Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Toyota Tsusho Corporation, Japan
- Simpson Spence & Young - Indonesia
- Xindia Steels Limited - India
- Tamil Nadu electricity Board
- Rio Tinto Coal - Australia
- Anglo American - United Kingdom
- Ministry of Transport, Egypt
- Petron Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Heidelberg Cement - Germany
- Eastern Energy - Thailand
- LBH Netherlands Bv - Netherlands
- Sakthi Sugars Limited - India
- Jindal Steel & Power Ltd - India
- Bukit Makmur.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Grasim Industreis Ltd - India
- Sojitz Corporation - Japan
- Kohat Cement Company Ltd. - Pakistan
- GN Power Mariveles Coal Plant, Philippines
- OPG Power Generation Pvt Ltd - India
- ASAPP Information Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chamber of Mines of South Africa
- Agrawal Coal Company - India
- International Coal Ventures Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Indonesian Coal Mining Association
- Sree Jayajothi Cements Limited - India
- Thiess Contractors Indonesia
- Essar Steel Hazira Ltd - India
- Port Waratah Coal Services - Australia
- Indian Energy Exchange, India
- Semirara Mining Corp, Philippines
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Siam City Cement PLC, Thailand
- Siam City Cement - Thailand
- Indika Energy - Indonesia
- Aditya Birla Group - India
- Asmin Koalindo Tuhup - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Orica Australia Pty. Ltd.
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Trasteel International SA, Italy
- Independent Power Producers Association of India
- Power Finance Corporation Ltd., India
- Marubeni Corporation - India
- Indogreen Group - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Posco Energy - South Korea
- Kapuas Tunggal Persada - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Minerals Council of Australia
- India Bulls Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Electricity Generating Authority of Thailand
- Australian Coal Association
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- Georgia Ports Authority, United States
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Makarim & Taira - Indonesia
- Pendopo Energi Batubara - Indonesia
- Malabar Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Africa Commodities Group - South Africa
- Deloitte Consulting - India
- Dalmia Cement Bharat India
- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- SMC Global Power, Philippines
- IEA Clean Coal Centre - UK
- Miang Besar Coal Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- San Jose City I Power Corp, Philippines
- Energy Development Corp, Philippines
- Jaiprakash Power Ventures ltd
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- Parry Sugars Refinery, India
- Formosa Plastics Group - Taiwan
- GAC Shipping (India) Pvt Ltd
- Karaikal Port Pvt Ltd - India
- Coalindo Energy - Indonesia
- The Treasury - Australian Government
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Petrochimia International Co. Ltd.- Taiwan
- Cement Manufacturers Association - India
- Coal and Oil Company - UAE
- Rashtriya Ispat Nigam Limited - India
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- Wilmar Investment Holdings
- Australian Commodity Traders Exchange
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Bhushan Steel Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sical Logistics Limited - India
- Kumho Petrochemical, South Korea
- Kideco Jaya Agung - Indonesia
- Ministry of Finance - Indonesia
- London Commodity Brokers - England
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Tata Chemicals Ltd - India
- GVK Power & Infra Limited - India
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- Gujarat Sidhee Cement - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercator Lines Limited - India
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- Antam Resourcindo - Indonesia
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- CIMB Investment Bank - Malaysia
- SMG Consultants - Indonesia
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Renaissance Capital - South Africa
- Economic Council, Georgia
- Globalindo Alam Lestari - Indonesia
- Baramulti Group, Indonesia
- CNBM International Corporation - China
- Kaltim Prima Coal - Indonesia
- White Energy Company Limited
- Singapore Mercantile Exchange
- Directorate General of MIneral and Coal - Indonesia
- Bulk Trading Sa - Switzerland
- TNB Fuel Sdn Bhd - Malaysia
- Central Java Power - Indonesia
- Therma Luzon, Inc, Philippines
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- MS Steel International - UAE
- Sindya Power Generating Company Private Ltd
- Videocon Industries ltd - India
- Indo Tambangraya Megah - Indonesia
- Vizag Seaport Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Billiton Holdings Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Bangladesh Power Developement Board
- PowerSource Philippines DevCo
- Star Paper Mills Limited - India
- Savvy Resources Ltd - HongKong
- Carbofer General Trading SA - India
- Maheswari Brothers Coal Limited - India
- Semirara Mining and Power Corporation, Philippines
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Romanian Commodities Exchange
- Salva Resources Pvt Ltd - India
- Mercuria Energy - Indonesia
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- TeaM Sual Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Energy Link Ltd, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vedanta Resources Plc - India
- Mjunction Services Limited - India
- Uttam Galva Steels Limited - India
- Price Waterhouse Coopers - Russia
- Central Electricity Authority - India
- Bukit Baiduri Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Electricity Authority, New Zealand
- Ministry of Mines - Canada
- Ind-Barath Power Infra Limited - India
- New Zealand Coal & Carbon
- Planning Commission, India
- The State Trading Corporation of India Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- PTC India Limited - India
- Directorate Of Revenue Intelligence - India
- ICICI Bank Limited - India
- Latin American Coal - Colombia
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Gujarat Mineral Development Corp Ltd - India
- Bayan Resources Tbk. - Indonesia
- Neyveli Lignite Corporation Ltd, - India
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