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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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Sunday, 24 August 14
SEA FREIGHT MARKETS STARTING TO LOOK POSITIVE; CAPES DRIVE FREIGHTS HIGHER
COALspot.com: The freight market has strengthen further this week with BDI up 7.19 pct week on week. The BDI was closed at 1,088 points while the B ...
Friday, 22 August 14
INDIAN IRON ORE ROYALTY RISE NOT LIKELY TO HURT STEELMAKERS' MARGINS - FITCH
Fitch Ratings does not expect an increase in India's iron ore royalty rates to have a major impact on the profitability of steel producers in t ...
Friday, 22 August 14
ARBITRATION CLAUSE IN LOU HELD TO REPLACE CHARTERPARTY ARBITRATION CLAUSE
KNOWLEDGE TO ELEVATE
The Claimants had claims for cargo damage against the vessel Owners arising under four bills of lading. The vessel was th ...
Friday, 22 August 14
ICAP ENERGY LAUNCHES GLOBAL COKING COAL DERIVATIVES TRADING
First contract completed and cleared on CME
COALspot.com: ICAP Energy, the energy business of ICAP plc, announces today that it has successful ...
Friday, 22 August 14
U.S WEEKLY COAL PRODUCTION UP 2.4% WEEK OVER WEEK
COALspot.com – United States the world's second largest coal producer, produced approximately 19.60 million short tons (mmst) of coal in ...
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- Deloitte Consulting - India
- Directorate General of MIneral and Coal - Indonesia
- Price Waterhouse Coopers - Russia
- Makarim & Taira - Indonesia
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- Mjunction Services Limited - India
- GAC Shipping (India) Pvt Ltd
- Carbofer General Trading SA - India
- Kideco Jaya Agung - Indonesia
- South Luzon Thermal Energy Corporation
- Kaltim Prima Coal - Indonesia
- Bhushan Steel Limited - India
- The State Trading Corporation of India Ltd
- Coastal Gujarat Power Limited - India
- Sindya Power Generating Company Private Ltd
- Videocon Industries ltd - India
- Ambuja Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- ASAPP Information Group - India
- London Commodity Brokers - England
- Barasentosa Lestari - Indonesia
- Planning Commission, India
- Bharathi Cement Corporation - India
- Manunggal Multi Energi - Indonesia
- Gujarat Sidhee Cement - India
- Pendopo Energi Batubara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Wilmar Investment Holdings
- Thiess Contractors Indonesia
- Bulk Trading Sa - Switzerland
- MS Steel International - UAE
- Meenaskhi Energy Private Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Port Waratah Coal Services - Australia
- Borneo Indobara - Indonesia
- Tata Chemicals Ltd - India
- Latin American Coal - Colombia
- Global Business Power Corporation, Philippines
- Romanian Commodities Exchange
- Edison Trading Spa - Italy
- Orica Mining Services - Indonesia
- Cement Manufacturers Association - India
- Indogreen Group - Indonesia
- Ind-Barath Power Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- Sical Logistics Limited - India
- Marubeni Corporation - India
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Samtan Co., Ltd - South Korea
- VISA Power Limited - India
- Jaiprakash Power Ventures ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Mines - Canada
- Essar Steel Hazira Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Parry Sugars Refinery, India
- PNOC Exploration Corporation - Philippines
- Aboitiz Power Corporation - Philippines
- Indian Energy Exchange, India
- Goldman Sachs - Singapore
- PowerSource Philippines DevCo
- Independent Power Producers Association of India
- Mintek Dendrill Indonesia
- Coal and Oil Company - UAE
- Global Green Power PLC Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Mercuria Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Therma Luzon, Inc, Philippines
- Central Electricity Authority - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Ministry of Transport, Egypt
- Metalloyd Limited - United Kingdom
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- SN Aboitiz Power Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining Corp, Philippines
- Aditya Birla Group - India
- Gujarat Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
- Australian Coal Association
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Dalmia Cement Bharat India
- Medco Energi Mining Internasional
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- International Coal Ventures Pvt Ltd - India
- SMG Consultants - Indonesia
- Timah Investasi Mineral - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- Thai Mozambique Logistica
- Merrill Lynch Commodities Europe
- Grasim Industreis Ltd - India
- Energy Development Corp, Philippines
- IHS Mccloskey Coal Group - USA
- PTC India Limited - India
- Renaissance Capital - South Africa
- Chamber of Mines of South Africa
- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Posco Energy - South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indonesian Coal Mining Association
- Trasteel International SA, Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- Tamil Nadu electricity Board
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- CIMB Investment Bank - Malaysia
- ICICI Bank Limited - India
- Wood Mackenzie - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indo Tambangraya Megah - Indonesia
- Australian Commodity Traders Exchange
- Simpson Spence & Young - Indonesia
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Oldendorff Carriers - Singapore
- Africa Commodities Group - South Africa
- Sojitz Corporation - Japan
- Bukit Asam (Persero) Tbk - Indonesia
- Larsen & Toubro Limited - India
- PetroVietnam Power Coal Import and Supply Company
- New Zealand Coal & Carbon
- Bhatia International Limited - India
- Parliament of New Zealand
- Altura Mining Limited, Indonesia
- Directorate Of Revenue Intelligence - India
- Straits Asia Resources Limited - Singapore
- Interocean Group of Companies - India
- Xindia Steels Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Baramulti Group, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- Georgia Ports Authority, United States
- TeaM Sual Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Malabar Cements Ltd - India
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Mercator Lines Limited - India
- Standard Chartered Bank - UAE
- Vedanta Resources Plc - India
- Power Finance Corporation Ltd., India
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Orica Australia Pty. Ltd.
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- Heidelberg Cement - Germany
- Indika Energy - Indonesia
- Star Paper Mills Limited - India
- Riau Bara Harum - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- The Treasury - Australian Government
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- McConnell Dowell - Australia
- Siam City Cement - Thailand
- Minerals Council of Australia
- Globalindo Alam Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- Bangladesh Power Developement Board
- Anglo American - United Kingdom
- Singapore Mercantile Exchange
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Neyveli Lignite Corporation Ltd, - India
- Vizag Seaport Private Limited - India
- Electricity Authority, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- The University of Queensland
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- Eastern Coal Council - USA
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Kobexindo Tractors - Indoneisa
- White Energy Company Limited
- Karbindo Abesyapradhi - Indoneisa
- Leighton Contractors Pty Ltd - Australia
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