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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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Saturday, 30 August 14
RECOVERY IN SIGHT FOR THE DRY BULK SHIPPING MARKET - DREWRY SHIPPING CONSULTANTS
Despite weak freight rates so far this year, Dry Bulk shipping earnings are forecast to recover as demand for both major and minor bulk commodities ...
Friday, 29 August 14
U.S. WEEKLY COAL PRODUCTION DROPS 1.3 PERCENT, EIA SAYS
COALspot.com – United States the world's second largest coal producer, produced approximately 19.40 million short tons (mmst) of coal in ...
Friday, 29 August 14
ADARO'S PROFITS SINK FURTHER AMID FALL IN COAL PRICES - JP
Adaro Energy, one of the country’s largest coal miners, has reported a 31 percent drop in net profit in the first half of this year as global ...
Friday, 29 August 14
CHINESE LIGNITE IMPORTS: QUANTITY OVER QUALITY? - CLARKSONS
In the first half of 2014, Chinese seaborne coal imports declined 0.4% y-o-y to 148mt, largely reflecting a 3.3% fall in imports of steam coal. Mea ...
Thursday, 28 August 14
PANAMAX: OWNERS CAN GET AROUND USD 16000 FOR A FRONTHAUL; PERIOD MARKET - VERY QUIET - FEARNLEYS
Handy
The activity and sentiment is improving in the Atlantic with the general TA rate is up about US$ 800 w-o-w. We see more South American carg ...
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- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Trasteel International SA, Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- Sojitz Corporation - Japan
- South Luzon Thermal Energy Corporation
- Ministry of Finance - Indonesia
- Antam Resourcindo - Indonesia
- Energy Link Ltd, New Zealand
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- OPG Power Generation Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Electricity Generating Authority of Thailand
- Commonwealth Bank - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kobexindo Tractors - Indoneisa
- SMG Consultants - Indonesia
- Larsen & Toubro Limited - India
- AsiaOL BioFuels Corp., Philippines
- LBH Netherlands Bv - Netherlands
- Pendopo Energi Batubara - Indonesia
- Price Waterhouse Coopers - Russia
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Simpson Spence & Young - Indonesia
- SN Aboitiz Power Inc, Philippines
- Videocon Industries ltd - India
- Semirara Mining Corp, Philippines
- Aboitiz Power Corporation - Philippines
- The University of Queensland
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Jaiprakash Power Ventures ltd
- IEA Clean Coal Centre - UK
- Malabar Cements Ltd - India
- Sical Logistics Limited - India
- Grasim Industreis Ltd - India
- Formosa Plastics Group - Taiwan
- Coastal Gujarat Power Limited - India
- Independent Power Producers Association of India
- GAC Shipping (India) Pvt Ltd
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- Mjunction Services Limited - India
- SMC Global Power, Philippines
- Bukit Makmur.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Ceylon Electricity Board - Sri Lanka
- PNOC Exploration Corporation - Philippines
- Ministry of Transport, Egypt
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- Kepco SPC Power Corporation, Philippines
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- India Bulls Power Limited - India
- Kideco Jaya Agung - Indonesia
- Posco Energy - South Korea
- Edison Trading Spa - Italy
- Directorate General of MIneral and Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Tamil Nadu electricity Board
- Aditya Birla Group - India
- Gujarat Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maharashtra Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Global Green Power PLC Corporation, Philippines
- Star Paper Mills Limited - India
- CNBM International Corporation - China
- Port Waratah Coal Services - Australia
- Central Electricity Authority - India
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Timah Investasi Mineral - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Dalmia Cement Bharat India
- Meralco Power Generation, Philippines
- Essar Steel Hazira Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Electricity Authority, New Zealand
- White Energy Company Limited
- GN Power Mariveles Coal Plant, Philippines
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sindya Power Generating Company Private Ltd
- Bangladesh Power Developement Board
- Coalindo Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Energy Development Corp, Philippines
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Vizag Seaport Private Limited - India
- Parry Sugars Refinery, India
- Manunggal Multi Energi - Indonesia
- Sree Jayajothi Cements Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Power Finance Corporation Ltd., India
- Renaissance Capital - South Africa
- Xindia Steels Limited - India
- Siam City Cement - Thailand
- Coal and Oil Company - UAE
- Heidelberg Cement - Germany
- The Treasury - Australian Government
- VISA Power Limited - India
- Tata Chemicals Ltd - India
- Bhatia International Limited - India
- Bhushan Steel Limited - India
- Romanian Commodities Exchange
- London Commodity Brokers - England
- Wood Mackenzie - Singapore
- Minerals Council of Australia
- European Bulk Services B.V. - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Attock Cement Pakistan Limited
- Petron Corporation, Philippines
- Deloitte Consulting - India
- New Zealand Coal & Carbon
- Indogreen Group - Indonesia
- Vedanta Resources Plc - India
- Baramulti Group, Indonesia
- Banpu Public Company Limited - Thailand
- Chamber of Mines of South Africa
- Bukit Baiduri Energy - Indonesia
- Anglo American - United Kingdom
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Ministry of Mines - Canada
- Ind-Barath Power Infra Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- Cement Manufacturers Association - India
- CIMB Investment Bank - Malaysia
- TeaM Sual Corporation - Philippines
- Medco Energi Mining Internasional
- Economic Council, Georgia
- Oldendorff Carriers - Singapore
- Uttam Galva Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- Intertek Mineral Services - Indonesia
- San Jose City I Power Corp, Philippines
- Africa Commodities Group - South Africa
- Orica Mining Services - Indonesia
- Marubeni Corporation - India
- GVK Power & Infra Limited - India
- Rio Tinto Coal - Australia
- Jorong Barutama Greston.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Wilmar Investment Holdings
- Mercator Lines Limited - India
- ASAPP Information Group - India
- PowerSource Philippines DevCo
- MS Steel International - UAE
- Kartika Selabumi Mining - Indonesia
- Mintek Dendrill Indonesia
- Siam City Cement PLC, Thailand
- Salva Resources Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- Meenaskhi Energy Private Limited - India
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
- Madhucon Powers Ltd - India
- Barasentosa Lestari - Indonesia
- Bhoruka Overseas - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Indian Energy Exchange, India
- Karaikal Port Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- ICICI Bank Limited - India
- Goldman Sachs - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- The State Trading Corporation of India Ltd
- Makarim & Taira - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Kapuas Tunggal Persada - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Latin American Coal - Colombia
- Jindal Steel & Power Ltd - India
- Merrill Lynch Commodities Europe
- Eastern Energy - Thailand
- Cigading International Bulk Terminal - Indonesia
- Agrawal Coal Company - India
- Thai Mozambique Logistica
- Bukit Asam (Persero) Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Asmin Koalindo Tuhup - Indonesia
- Indo Tambangraya Megah - Indonesia
- Orica Australia Pty. Ltd.
- Straits Asia Resources Limited - Singapore
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