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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, 28 August 14
BANPU REPORTS HIGHER FIRST-HALF YEAR RESULTS FOR 2014
COALspot.com: Banpu Public Company Limited (BANPU) reports higher first half-year financial results for 2014 having its gross profit increasing 3 p ...
Wednesday, 27 August 14
FREIGHT MARKET: IS THE MARKET IN A RECOVERY MOOD? - GEORGE ILIOPOULOS
Is the market in a recovery mood?
August is typically a time when the shipping industry takes it easy… charter-ers book their requireme ...
Tuesday, 26 August 14
4TH ANNUAL ASIA NICKEL
4th Annual Asia Nickel
19-20 Nov 2014
Grand Hyatt Jakarta, Indonesia
Web Site
Asia’s Premier Nickel Conference
Regulation in ...
Tuesday, 26 August 14
DESPITE LOW DRY BULK RATES, BULKER PRICES ARE STILL HIGH - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Traditionally, August tends to be a month of slow activity in the sale and purchasing market and this year has been no exception. However, as shipb ...
Tuesday, 26 August 14
GOVT ON TRACK TO LIMIT COAL OUTPUT - THE JAKARTA POST
The government has announced that it will proceed with plans to cap the production of coal next year, a move aimed not only at protecting the envir ...
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- Eastern Coal Council - USA
- VISA Power Limited - India
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- Sical Logistics Limited - India
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- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
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- Siam City Cement PLC, Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Africa Commodities Group - South Africa
- Orica Australia Pty. Ltd.
- SMC Global Power, Philippines
- Renaissance Capital - South Africa
- TeaM Sual Corporation - Philippines
- Deloitte Consulting - India
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- Intertek Mineral Services - Indonesia
- Mjunction Services Limited - India
- Heidelberg Cement - Germany
- TNB Fuel Sdn Bhd - Malaysia
- McConnell Dowell - Australia
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- Romanian Commodities Exchange
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- Bulk Trading Sa - Switzerland
- Mintek Dendrill Indonesia
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- PowerSource Philippines DevCo
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- Standard Chartered Bank - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Therma Luzon, Inc, Philippines
- ASAPP Information Group - India
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- Electricity Authority, New Zealand
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- IEA Clean Coal Centre - UK
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- India Bulls Power Limited - India
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- Coalindo Energy - Indonesia
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- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Australian Coal Association
- Barasentosa Lestari - Indonesia
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Bharathi Cement Corporation - India
- ICICI Bank Limited - India
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- Sindya Power Generating Company Private Ltd
- Samtan Co., Ltd - South Korea
- Marubeni Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Bhatia International Limited - India
- Makarim & Taira - Indonesia
- Global Green Power PLC Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Aditya Birla Group - India
- London Commodity Brokers - England
- MS Steel International - UAE
- Wood Mackenzie - Singapore
- Bukit Makmur.PT - Indonesia
- Planning Commission, India
- Jindal Steel & Power Ltd - India
- Attock Cement Pakistan Limited
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- Indika Energy - Indonesia
- Central Java Power - Indonesia
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- Maheswari Brothers Coal Limited - India
- Thai Mozambique Logistica
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- Ambuja Cements Ltd - India
- Trasteel International SA, Italy
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Straits Asia Resources Limited - Singapore
- Coastal Gujarat Power Limited - India
- Goldman Sachs - Singapore
- The Treasury - Australian Government
- Indian Energy Exchange, India
- Lanco Infratech Ltd - India
- Mercator Lines Limited - India
- PTC India Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Independent Power Producers Association of India
- Global Coal Blending Company Limited - Australia
- Indian Oil Corporation Limited
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- GVK Power & Infra Limited - India
- Singapore Mercantile Exchange
- Pendopo Energi Batubara - Indonesia
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- Savvy Resources Ltd - HongKong
- PNOC Exploration Corporation - Philippines
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- Minerals Council of Australia
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- Ceylon Electricity Board - Sri Lanka
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- Globalindo Alam Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
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- Economic Council, Georgia
- Banpu Public Company Limited - Thailand
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- South Luzon Thermal Energy Corporation
- Jaiprakash Power Ventures ltd
- Bangladesh Power Developement Board
- Dalmia Cement Bharat India
- Semirara Mining Corp, Philippines
- Posco Energy - South Korea
- Bhushan Steel Limited - India
- Leighton Contractors Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Salva Resources Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Orica Mining Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Agrawal Coal Company - India
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- Parliament of New Zealand
- Merrill Lynch Commodities Europe
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Sakthi Sugars Limited - India
- Sinarmas Energy and Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Anglo American - United Kingdom
- Kobexindo Tractors - Indoneisa
- Port Waratah Coal Services - Australia
- Meenaskhi Energy Private Limited - India
- Kapuas Tunggal Persada - Indonesia
- Ministry of Mines - Canada
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Malabar Cements Ltd - India
- Metalloyd Limited - United Kingdom
- Timah Investasi Mineral - Indoneisa
- Coal and Oil Company - UAE
- Xindia Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Australian Commodity Traders Exchange
- Sojitz Corporation - Japan
- San Jose City I Power Corp, Philippines
- The University of Queensland
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Energy Development Corp, Philippines
- Ministry of Finance - Indonesia
- International Coal Ventures Pvt Ltd - India
- Eastern Energy - Thailand
- Toyota Tsusho Corporation, Japan
- Kalimantan Lumbung Energi - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Uttam Galva Steels Limited - India
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parry Sugars Refinery, India
- Chamber of Mines of South Africa
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- Georgia Ports Authority, United States
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- Thiess Contractors Indonesia
- LBH Netherlands Bv - Netherlands
- White Energy Company Limited
- Vizag Seaport Private Limited - India
- Commonwealth Bank - Australia
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