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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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Monday, 18 August 14
CFR SOUTH CHINA COAL SWAP PERFORMED WELL THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for delivery in September 2014 increased US$ 0.45 (+0.66%) day on day and US$ 0.30 (+0.44%)&nbs ...
Saturday, 16 August 14
HIGH DEMAND OF IRON ORE SHIPMENTS PUSHED CAPE INDEX UPWARDS
COALspot.com: This week's freight market was buoyant with Cape and panamax index seeing a big jump pushing the BDI above 1,000 points week on c ...
Friday, 15 August 14
5TH ANNUAL POWER AND ELECTRICITY INDONESIA
5TH ANNUAL POWER AND ELECTRICITY INDONESIA
13-16 October 2014
Grand Hyatt Jakarta, Indonesia
Web Site
The country’s definitive ...
Thursday, 14 August 14
U.S. STEAM COAL IMPORTS REMAIN DOWN SHARPLY FROM HISTORIC HIGH IN 2007, SAYS EIA
COALspot.com: U.S. steam coal imports at power plants have fallen significantly from their peak level of more than 30 million tons in 2007 to less ...
Thursday, 14 August 14
INDIA'S PLAN TO START AN INFRASTRUCTURE BOOM AND TO INVEST US$ 1 TRILLION BY 2017 WILL SURELY AFFECT THE DRY BULK TRADE - FEARNLEYS
Handy
The Atlantic Supra market has continued its improving sentiment with rates climbing and TA´s are now up about US$ 900 w-o-w, said Fea ...
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- Chamber of Mines of South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Authority, New Zealand
- European Bulk Services B.V. - Netherlands
- Indika Energy - Indonesia
- Marubeni Corporation - India
- Formosa Plastics Group - Taiwan
- Essar Steel Hazira Ltd - India
- Ambuja Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- Aboitiz Power Corporation - Philippines
- CNBM International Corporation - China
- Indian Energy Exchange, India
- New Zealand Coal & Carbon
- GMR Energy Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Global Business Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Agrawal Coal Company - India
- PowerSource Philippines DevCo
- Gujarat Sidhee Cement - India
- Timah Investasi Mineral - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Price Waterhouse Coopers - Russia
- SN Aboitiz Power Inc, Philippines
- Central Java Power - Indonesia
- Renaissance Capital - South Africa
- Eastern Energy - Thailand
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Africa Commodities Group - South Africa
- Carbofer General Trading SA - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CIMB Investment Bank - Malaysia
- Kideco Jaya Agung - Indonesia
- Cement Manufacturers Association - India
- Interocean Group of Companies - India
- Trasteel International SA, Italy
- Ceylon Electricity Board - Sri Lanka
- Bulk Trading Sa - Switzerland
- Holcim Trading Pte Ltd - Singapore
- Siam City Cement - Thailand
- Madhucon Powers Ltd - India
- Eastern Coal Council - USA
- IEA Clean Coal Centre - UK
- Baramulti Group, Indonesia
- Ministry of Transport, Egypt
- Sinarmas Energy and Mining - Indonesia
- Coal and Oil Company - UAE
- Wilmar Investment Holdings
- Bhatia International Limited - India
- Aditya Birla Group - India
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- GVK Power & Infra Limited - India
- Star Paper Mills Limited - India
- PTC India Limited - India
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Indogreen Group - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Maharashtra Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- Savvy Resources Ltd - HongKong
- Iligan Light & Power Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Energy Development Corp, Philippines
- PNOC Exploration Corporation - Philippines
- Sojitz Corporation - Japan
- Jindal Steel & Power Ltd - India
- Electricity Generating Authority of Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- Heidelberg Cement - Germany
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Riau Bara Harum - Indonesia
- Thai Mozambique Logistica
- Rio Tinto Coal - Australia
- Meralco Power Generation, Philippines
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Singapore Mercantile Exchange
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- IHS Mccloskey Coal Group - USA
- Karaikal Port Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Samtan Co., Ltd - South Korea
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- Kepco SPC Power Corporation, Philippines
- MS Steel International - UAE
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Siam City Cement PLC, Thailand
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- Manunggal Multi Energi - Indonesia
- Georgia Ports Authority, United States
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Bangladesh Power Developement Board
- Coalindo Energy - Indonesia
- Malabar Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Minerals Council of Australia
- Banpu Public Company Limited - Thailand
- Planning Commission, India
- London Commodity Brokers - England
- Gujarat Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Uttam Galva Steels Limited - India
- ASAPP Information Group - India
- GAC Shipping (India) Pvt Ltd
- Grasim Industreis Ltd - India
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- Mercator Lines Limited - India
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Petron Corporation, Philippines
- White Energy Company Limited
- Meenaskhi Energy Private Limited - India
- India Bulls Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Tata Chemicals Ltd - India
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Energy Link Ltd, New Zealand
- Borneo Indobara - Indonesia
- Ministry of Mines - Canada
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Asmin Koalindo Tuhup - Indonesia
- Goldman Sachs - Singapore
- Sical Logistics Limited - India
- Mintek Dendrill Indonesia
- Commonwealth Bank - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
- SMG Consultants - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Australian Commodity Traders Exchange
- The University of Queensland
- Ministry of Finance - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bhushan Steel Limited - India
- Directorate Of Revenue Intelligence - India
- VISA Power Limited - India
- Bharathi Cement Corporation - India
- Simpson Spence & Young - Indonesia
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- ICICI Bank Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- LBH Netherlands Bv - Netherlands
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- Port Waratah Coal Services - Australia
- Makarim & Taira - Indonesia
- TeaM Sual Corporation - Philippines
- Tamil Nadu electricity Board
- Kapuas Tunggal Persada - Indonesia
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Larsen & Toubro Limited - India
- Independent Power Producers Association of India
- Straits Asia Resources Limited - Singapore
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Bhoruka Overseas - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Bukit Baiduri Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- McConnell Dowell - Australia
- Parry Sugars Refinery, India
- Orica Mining Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- SMC Global Power, Philippines
- Indo Tambangraya Megah - Indonesia
- Xindia Steels Limited - India
- Economic Council, Georgia
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- Vedanta Resources Plc - India
- Posco Energy - South Korea
- Wood Mackenzie - Singapore
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