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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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Wednesday, 13 August 14
WEEKLY MARKET INSIGHT - KONSTANTINOS KONTOMICHIS SNP BROKER
Being at the peak of the holiday season, August is, as usual, the quietest month in terms of snp transactions, yet it is also a time very critical ...
Wednesday, 13 August 14
WHAT DOES PROJECT CARGO REALLY MEAN TO INSURERS?
KNOWLEDGE TO ELEVATE
Richard Kamppari-Baker, claims manager of FP Marine Risks, explains the challenges of project cargo risk assessment from ...
Wednesday, 13 August 14
INDONESIAN COAL PRICE REFERENCE FALL AGAIN CLOSE TO 57 MONTHS LOWS
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down the coal bench mark price in August. HBA for the month of A ...
Monday, 11 August 14
LARGEST CHINESE TRADE SURPLUS EVER RECORDED IN JULY - BIMCO
China recorded a trade surplus of USD 47.3 billion in July 2014. The record high surplus came on the back of very strong export growth while import ...
Monday, 11 August 14
INDONESIAN THERMAL COAL SWAPS SEEING SOME POSITIVE TREND
COALspot.com: Indonesian coal swaps for average September 2014 increased US$ 0.20 (+0.36%) day on day and US$ 1.30 (+2.41%) per mt week on week. Th ...
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- Siam City Cement PLC, Thailand
- Ministry of Finance - Indonesia
- Ind-Barath Power Infra Limited - India
- Petron Corporation, Philippines
- Anglo American - United Kingdom
- CIMB Investment Bank - Malaysia
- Mercuria Energy - Indonesia
- CNBM International Corporation - China
- Asmin Koalindo Tuhup - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tata Chemicals Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Independent Power Producers Association of India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jaiprakash Power Ventures ltd
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Holcim Trading Pte Ltd - Singapore
- Malabar Cements Ltd - India
- Barasentosa Lestari - Indonesia
- Central Electricity Authority - India
- Miang Besar Coal Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- Meenaskhi Energy Private Limited - India
- Tamil Nadu electricity Board
- Kaltim Prima Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- Thai Mozambique Logistica
- Sindya Power Generating Company Private Ltd
- New Zealand Coal & Carbon
- GN Power Mariveles Coal Plant, Philippines
- Wood Mackenzie - Singapore
- Posco Energy - South Korea
- Samtan Co., Ltd - South Korea
- Kapuas Tunggal Persada - Indonesia
- South Luzon Thermal Energy Corporation
- SMG Consultants - Indonesia
- Savvy Resources Ltd - HongKong
- Antam Resourcindo - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- Australian Coal Association
- Baramulti Group, Indonesia
- Sakthi Sugars Limited - India
- Parliament of New Zealand
- International Coal Ventures Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Power Finance Corporation Ltd., India
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Orica Australia Pty. Ltd.
- Pendopo Energi Batubara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- Xindia Steels Limited - India
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Coalindo Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Straits Asia Resources Limited - Singapore
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Coal and Oil Company - UAE
- Latin American Coal - Colombia
- Ceylon Electricity Board - Sri Lanka
- The State Trading Corporation of India Ltd
- Energy Development Corp, Philippines
- Banpu Public Company Limited - Thailand
- IEA Clean Coal Centre - UK
- Singapore Mercantile Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Kepco SPC Power Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Port Waratah Coal Services - Australia
- Bukit Baiduri Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- SMC Global Power, Philippines
- Ministry of Mines - Canada
- Cement Manufacturers Association - India
- Maharashtra Electricity Regulatory Commission - India
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Medco Energi Mining Internasional
- Standard Chartered Bank - UAE
- Krishnapatnam Port Company Ltd. - India
- Metalloyd Limited - United Kingdom
- Indian Energy Exchange, India
- European Bulk Services B.V. - Netherlands
- Commonwealth Bank - Australia
- Marubeni Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Borneo Indobara - Indonesia
- Karaikal Port Pvt Ltd - India
- Sical Logistics Limited - India
- Indonesian Coal Mining Association
- Formosa Plastics Group - Taiwan
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Edison Trading Spa - Italy
- Indian Oil Corporation Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Videocon Industries ltd - India
- Bhushan Steel Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Deloitte Consulting - India
- Salva Resources Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- Siam City Cement - Thailand
- PTC India Limited - India
- Timah Investasi Mineral - Indoneisa
- The University of Queensland
- India Bulls Power Limited - India
- Energy Link Ltd, New Zealand
- Makarim & Taira - Indonesia
- Heidelberg Cement - Germany
- Wilmar Investment Holdings
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- Rio Tinto Coal - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate Of Revenue Intelligence - India
- Grasim Industreis Ltd - India
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- TeaM Sual Corporation - Philippines
- MS Steel International - UAE
- Mjunction Services Limited - India
- Renaissance Capital - South Africa
- San Jose City I Power Corp, Philippines
- Oldendorff Carriers - Singapore
- Eastern Energy - Thailand
- Alfred C Toepfer International GmbH - Germany
- OPG Power Generation Pvt Ltd - India
- Trasteel International SA, Italy
- Larsen & Toubro Limited - India
- Semirara Mining Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- McConnell Dowell - Australia
- Intertek Mineral Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Romanian Commodities Exchange
- Aboitiz Power Corporation - Philippines
- Merrill Lynch Commodities Europe
- Aditya Birla Group - India
- Meralco Power Generation, Philippines
- Goldman Sachs - Singapore
- The Treasury - Australian Government
- Indika Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Kideco Jaya Agung - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Coal Blending Company Limited - Australia
- Sree Jayajothi Cements Limited - India
- Jindal Steel & Power Ltd - India
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Minerals Council of Australia
- Jorong Barutama Greston.PT - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Globalindo Alam Lestari - Indonesia
- Georgia Ports Authority, United States
- Indogreen Group - Indonesia
- GMR Energy Limited - India
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- White Energy Company Limited
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhatia International Limited - India
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Mercator Lines Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- IHS Mccloskey Coal Group - USA
- Mintek Dendrill Indonesia
- GAC Shipping (India) Pvt Ltd
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- SN Aboitiz Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Kumho Petrochemical, South Korea
- GVK Power & Infra Limited - India
- Planning Commission, India
- Vedanta Resources Plc - India
- Parry Sugars Refinery, India
- Sarangani Energy Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- London Commodity Brokers - England
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- Electricity Authority, New Zealand
- Global Business Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
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