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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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Wednesday, 03 September 14
CFR S.CHINA COAL SWAP FOR JAN 2015 DELIVERY CLOSED AT $ 68.30 PMT; DOWN 2.43% W-O-W
COALspot.com: API 8 CFR South China Coal swap for delivery in October 2014 decreased US$ 0.95 (-1.39%) day on day and US$ 1.40 (-2.03%) week on wee ...
Tuesday, 02 September 14
BERAU COAL HAS AWARDED A CONTRACT EXTENSION TO BUMA FOR 647 MLN BCM OVERBURDEN REMOVAL
COALspot.com: PT Delta Dunia Makmur Tbk (“DOID”) has announced that its primary operating subsidiary, PT Bukit Makmur Mandiri Utama (&l ...
Monday, 01 September 14
GLOBALCOAL WELCOMES TWO NEW MARKET MEMBERS
COALspot.com: globalCOAL® announced today that two Market Members have joined its trading community. Both new Market Members are from the India ...
Sunday, 31 August 14
COAL FREIGHT RATES INTO INDIA FROM INDONESIA FIRM
COALspot.com: The freight market continued to firm this week. BDI up 5.42 percent week ended 29 August and closed at 1147 points while the Ca ...
Saturday, 30 August 14
INDIAN GOVERNMENT SHOULD TAKE NOTICE: THERMAL COAL IMPORT PRICES EXTREMELY LOW - COMMODORE RESEARCH
COALspot.com: Both Indonesian and Australian thermal coal prices are at the lowest levels seen this decade, with Indonesia's monthly benchmark ...
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- Coalindo Energy - Indonesia
- Petron Corporation, Philippines
- Heidelberg Cement - Germany
- Ministry of Finance - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Vizag Seaport Private Limited - India
- Salva Resources Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Electricity Authority, New Zealand
- Indian Oil Corporation Limited
- Karaikal Port Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- London Commodity Brokers - England
- Bhatia International Limited - India
- Parliament of New Zealand
- Toyota Tsusho Corporation, Japan
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Vedanta Resources Plc - India
- Standard Chartered Bank - UAE
- South Luzon Thermal Energy Corporation
- GVK Power & Infra Limited - India
- Binh Thuan Hamico - Vietnam
- Siam City Cement - Thailand
- Kumho Petrochemical, South Korea
- Leighton Contractors Pty Ltd - Australia
- Cement Manufacturers Association - India
- Indo Tambangraya Megah - Indonesia
- Dalmia Cement Bharat India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- TeaM Sual Corporation - Philippines
- Wilmar Investment Holdings
- Bulk Trading Sa - Switzerland
- TNB Fuel Sdn Bhd - Malaysia
- Billiton Holdings Pty Ltd - Australia
- Electricity Generating Authority of Thailand
- Minerals Council of Australia
- Economic Council, Georgia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indogreen Group - Indonesia
- Manunggal Multi Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Australian Coal Association
- Banpu Public Company Limited - Thailand
- Semirara Mining and Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Kartika Selabumi Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- Coastal Gujarat Power Limited - India
- Antam Resourcindo - Indonesia
- Mjunction Services Limited - India
- Attock Cement Pakistan Limited
- Rio Tinto Coal - Australia
- PowerSource Philippines DevCo
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sarangani Energy Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- Agrawal Coal Company - India
- White Energy Company Limited
- Bharathi Cement Corporation - India
- Kobexindo Tractors - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Global Coal Blending Company Limited - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Videocon Industries ltd - India
- San Jose City I Power Corp, Philippines
- Eastern Coal Council - USA
- Eastern Energy - Thailand
- Kepco SPC Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Simpson Spence & Young - Indonesia
- Straits Asia Resources Limited - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Bukit Makmur.PT - Indonesia
- VISA Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- PetroVietnam Power Coal Import and Supply Company
- Malabar Cements Ltd - India
- Georgia Ports Authority, United States
- PNOC Exploration Corporation - Philippines
- Ministry of Transport, Egypt
- Semirara Mining Corp, Philippines
- Bhoruka Overseas - Indonesia
- Mercuria Energy - Indonesia
- Anglo American - United Kingdom
- Riau Bara Harum - Indonesia
- Global Business Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Ministry of Mines - Canada
- Global Green Power PLC Corporation, Philippines
- Thai Mozambique Logistica
- Central Java Power - Indonesia
- Commonwealth Bank - Australia
- Goldman Sachs - Singapore
- Orica Australia Pty. Ltd.
- Jindal Steel & Power Ltd - India
- Indika Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Lanco Infratech Ltd - India
- Therma Luzon, Inc, Philippines
- Interocean Group of Companies - India
- Tata Chemicals Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMC Global Power, Philippines
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Electricity Authority - India
- Chamber of Mines of South Africa
- Power Finance Corporation Ltd., India
- Sojitz Corporation - Japan
- Krishnapatnam Port Company Ltd. - India
- Sakthi Sugars Limited - India
- Bayan Resources Tbk. - Indonesia
- Aboitiz Power Corporation - Philippines
- PTC India Limited - India
- Romanian Commodities Exchange
- Sree Jayajothi Cements Limited - India
- Meralco Power Generation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- Port Waratah Coal Services - Australia
- Mintek Dendrill Indonesia
- Altura Mining Limited, Indonesia
- Grasim Industreis Ltd - India
- IHS Mccloskey Coal Group - USA
- Carbofer General Trading SA - India
- Renaissance Capital - South Africa
- Singapore Mercantile Exchange
- Indonesian Coal Mining Association
- Meenaskhi Energy Private Limited - India
- Edison Trading Spa - Italy
- India Bulls Power Limited - India
- Marubeni Corporation - India
- Larsen & Toubro Limited - India
- Uttam Galva Steels Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Parry Sugars Refinery, India
- Bukit Baiduri Energy - Indonesia
- Energy Link Ltd, New Zealand
- Chettinad Cement Corporation Ltd - India
- Jaiprakash Power Ventures ltd
- OPG Power Generation Pvt Ltd - India
- Star Paper Mills Limited - India
- Makarim & Taira - Indonesia
- Savvy Resources Ltd - HongKong
- Maheswari Brothers Coal Limited - India
- Africa Commodities Group - South Africa
- Gujarat Mineral Development Corp Ltd - India
- The Treasury - Australian Government
- GMR Energy Limited - India
- Coal and Oil Company - UAE
- ASAPP Information Group - India
- Energy Development Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Bangladesh Power Developement Board
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Latin American Coal - Colombia
- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Orica Mining Services - Indonesia
- ICICI Bank Limited - India
- Essar Steel Hazira Ltd - India
- Deloitte Consulting - India
- Kohat Cement Company Ltd. - Pakistan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kaltim Prima Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- Price Waterhouse Coopers - Russia
- Samtan Co., Ltd - South Korea
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The University of Queensland
- Kideco Jaya Agung - Indonesia
- Timah Investasi Mineral - Indoneisa
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- MS Steel International - UAE
- Sical Logistics Limited - India
- Globalindo Alam Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Trasteel International SA, Italy
- Xindia Steels Limited - India
- Directorate Of Revenue Intelligence - India
- Australian Commodity Traders Exchange
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- CNBM International Corporation - China
- Pendopo Energi Batubara - Indonesia
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Medco Energi Mining Internasional
- Siam City Cement PLC, Thailand
- Posco Energy - South Korea
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