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