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