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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, 21 August 14
PREDICTIONS FROM VARIOUS SHIPPERS AND MINING INDUSTRY FOR 2ND HALF YEAR AND ESPECIALLY Q4 IS POSITIVE
Handy
The activity has increased in both hemispheres this week and we see rates edging up on all trades. TA´s are now paying around 8k whic ...
Thursday, 21 August 14
SHIP OWNERS KEEP SHYING AWAY FOR NEW SHIP INVESTMENTS, OVERALL TREND IS DOWN - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Ship owners have remained in the sidelines of the Sale & Purchasing market for second hand vessels, during most of August, while they also slow ...
Wednesday, 20 August 14
DRY BULK MARKET TO REBOUND IN THE FOURTH QUARTER, OR NOT....- NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The projected rebound of the dry bulk market is still an elusive trend and shipbrokers and analysts are looking to identify the timing of the loomi ...
Monday, 18 August 14
CAPESIZE RATES TO RISE TO MUCH HIGHER LEVELS THIS YEAR - JEFFREY LANDSBERG
COALspot.com: Capesize rates ended last week at $15,561/day, which marked a week-on-week increase of $6,167 (66%). Capesize rates have been a ...
Monday, 18 August 14
SUB-BIT FOB INDONESIA COAL SWAP CLOSED AT $58.60 FOR SEPTEMBER 2015; UP $4 FROM SEPTEMBER 2014 CLOSING
COALspot.com: Indonesian coal swaps for average September 2014 decreased US$ 0.15 (-0.27%) day on day and US$ 0.75 (-1.36%) per mt week on week. Th ...
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- Minerals Council of Australia
- Madhucon Powers Ltd - India
- Iligan Light & Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Posco Energy - South Korea
- Global Business Power Corporation, Philippines
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Romanian Commodities Exchange
- London Commodity Brokers - England
- Timah Investasi Mineral - Indoneisa
- Coal and Oil Company - UAE
- Kalimantan Lumbung Energi - Indonesia
- Sakthi Sugars Limited - India
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Essar Steel Hazira Ltd - India
- Interocean Group of Companies - India
- The Treasury - Australian Government
- Bangladesh Power Developement Board
- Cigading International Bulk Terminal - Indonesia
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Singapore Mercantile Exchange
- Central Electricity Authority - India
- Standard Chartered Bank - UAE
- Directorate Of Revenue Intelligence - India
- Mintek Dendrill Indonesia
- Borneo Indobara - Indonesia
- PNOC Exploration Corporation - Philippines
- Trasteel International SA, Italy
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- Chettinad Cement Corporation Ltd - India
- Therma Luzon, Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Mercator Lines Limited - India
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Vedanta Resources Plc - India
- Gujarat Sidhee Cement - India
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Xindia Steels Limited - India
- Larsen & Toubro Limited - India
- Asmin Koalindo Tuhup - Indonesia
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Aditya Birla Group - India
- Latin American Coal - Colombia
- Meralco Power Generation, Philippines
- Central Java Power - Indonesia
- Thai Mozambique Logistica
- Australian Coal Association
- Energy Link Ltd, New Zealand
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Ceylon Electricity Board - Sri Lanka
- Jorong Barutama Greston.PT - Indonesia
- The University of Queensland
- Sinarmas Energy and Mining - Indonesia
- Antam Resourcindo - Indonesia
- LBH Netherlands Bv - Netherlands
- Sree Jayajothi Cements Limited - India
- Electricity Authority, New Zealand
- Price Waterhouse Coopers - Russia
- Orica Australia Pty. Ltd.
- Malabar Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Independent Power Producers Association of India
- GMR Energy Limited - India
- Siam City Cement PLC, Thailand
- White Energy Company Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indika Energy - Indonesia
- MS Steel International - UAE
- Miang Besar Coal Terminal - Indonesia
- Videocon Industries ltd - India
- Indian Energy Exchange, India
- Medco Energi Mining Internasional
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Indian Oil Corporation Limited
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- Eastern Coal Council - USA
- Parliament of New Zealand
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Marubeni Corporation - India
- Electricity Generating Authority of Thailand
- PowerSource Philippines DevCo
- Jaiprakash Power Ventures ltd
- Eastern Energy - Thailand
- Ministry of Transport, Egypt
- Maharashtra Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- Orica Mining Services - Indonesia
- Ministry of Mines - Canada
- Samtan Co., Ltd - South Korea
- Tamil Nadu electricity Board
- Cement Manufacturers Association - India
- SMC Global Power, Philippines
- Siam City Cement - Thailand
- Sical Logistics Limited - India
- Attock Cement Pakistan Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- TNB Fuel Sdn Bhd - Malaysia
- Deloitte Consulting - India
- Bukit Asam (Persero) Tbk - Indonesia
- ICICI Bank Limited - India
- Kepco SPC Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Billiton Holdings Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- Thiess Contractors Indonesia
- Merrill Lynch Commodities Europe
- Star Paper Mills Limited - India
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Tata Chemicals Ltd - India
- Oldendorff Carriers - Singapore
- Grasim Industreis Ltd - India
- Lanco Infratech Ltd - India
- Indogreen Group - Indonesia
- Agrawal Coal Company - India
- Parry Sugars Refinery, India
- Sarangani Energy Corporation, Philippines
- Mjunction Services Limited - India
- Indonesian Coal Mining Association
- PTC India Limited - India
- Baramulti Group, Indonesia
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- Renaissance Capital - South Africa
- Bhoruka Overseas - Indonesia
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- Bukit Baiduri Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- McConnell Dowell - Australia
- Kartika Selabumi Mining - Indonesia
- Sojitz Corporation - Japan
- San Jose City I Power Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Wood Mackenzie - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aboitiz Power Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- New Zealand Coal & Carbon
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Toyota Tsusho Corporation, Japan
- Kideco Jaya Agung - Indonesia
- Bhatia International Limited - India
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- Meenaskhi Energy Private Limited - India
- Anglo American - United Kingdom
- Mercuria Energy - Indonesia
- Energy Development Corp, Philippines
- Bulk Trading Sa - Switzerland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Dalmia Cement Bharat India
- SN Aboitiz Power Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Africa Commodities Group - South Africa
- Vizag Seaport Private Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Makmur.PT - Indonesia
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- CNBM International Corporation - China
- Wilmar Investment Holdings
- Rio Tinto Coal - Australia
- Petron Corporation, Philippines
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- Bhushan Steel Limited - India
- Australian Commodity Traders Exchange
- Chamber of Mines of South Africa
- Barasentosa Lestari - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Coalindo Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Gujarat Electricity Regulatory Commission - India
- Port Waratah Coal Services - Australia
- Kumho Petrochemical, South Korea
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- IHS Mccloskey Coal Group - USA
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- Holcim Trading Pte Ltd - Singapore
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