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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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Friday, 08 August 14
U.S PRODUCED 35.80 MMST OF COAL IN JULY; UP 7.89 MONTH OVER MONTH
COALspot.com – United States the world's second largest coal producer, produced approximately 19.50 million short tons (mmst) of coal in ...
Friday, 08 August 14
PORT OF NEWCASTLE SHIPPED 19.52% MORE COAL IN JULY FROM LAST MONTH
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped 14,036,947 t ...
Thursday, 07 August 14
SHORT-TERM COAL OUTLOOK IMPROVES - SAM QUEST
With demand for and supply of coal to grow in the near future, prices are expected to rebound in the short term; the long-term prospects, however, ...
Thursday, 07 August 14
BULKING UP IN AFRICA: CHINA INFLATES SEABORNE MINERALS EXPORT TRADE - RICHARD SCOTT
Africa’s profile as an exporter of dry bulk commodities is rising. Responding to growing import demand from China, India and other buyers in ...
Wednesday, 06 August 14
CAPES: BUSINESS INTEREST REMAINS SOFT; CURRENTLY NO SIGNS OF IMPROVEMENT - INTERMODAL
COALspot.com: Despite the considerable pressure witnessed in the freight market for most of the size segments, the Dry Bulk Index was able to note ...
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- Holcim Trading Pte Ltd - Singapore
- Indika Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Global Coal Blending Company Limited - Australia
- Sree Jayajothi Cements Limited - India
- Thai Mozambique Logistica
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- Chamber of Mines of South Africa
- Anglo American - United Kingdom
- Videocon Industries ltd - India
- Aditya Birla Group - India
- Vizag Seaport Private Limited - India
- Commonwealth Bank - Australia
- Heidelberg Cement - Germany
- Billiton Holdings Pty Ltd - Australia
- MS Steel International - UAE
- Baramulti Group, Indonesia
- Madhucon Powers Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- GMR Energy Limited - India
- Coal and Oil Company - UAE
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- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
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- SMG Consultants - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sarangani Energy Corporation, Philippines
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- Trasteel International SA, Italy
- Tamil Nadu electricity Board
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- Cement Manufacturers Association - India
- Edison Trading Spa - Italy
- PetroVietnam Power Coal Import and Supply Company
- Minerals Council of Australia
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Ind-Barath Power Infra Limited - India
- Xindia Steels Limited - India
- TeaM Sual Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- Lanco Infratech Ltd - India
- Samtan Co., Ltd - South Korea
- Maheswari Brothers Coal Limited - India
- Asmin Koalindo Tuhup - Indonesia
- VISA Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Energy Development Corp, Philippines
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- Sical Logistics Limited - India
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- Krishnapatnam Port Company Ltd. - India
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- Interocean Group of Companies - India
- Antam Resourcindo - Indonesia
- Mercuria Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Renaissance Capital - South Africa
- International Coal Ventures Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Karbindo Abesyapradhi - Indoneisa
- European Bulk Services B.V. - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Parry Sugars Refinery, India
- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Simpson Spence & Young - Indonesia
- Barasentosa Lestari - Indonesia
- Siam City Cement PLC, Thailand
- Straits Asia Resources Limited - Singapore
- AsiaOL BioFuels Corp., Philippines
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Indo Tambangraya Megah - Indonesia
- Riau Bara Harum - Indonesia
- Uttam Galva Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Orica Australia Pty. Ltd.
- Jorong Barutama Greston.PT - Indonesia
- Australian Coal Association
- Kohat Cement Company Ltd. - Pakistan
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Sidhee Cement - India
- SN Aboitiz Power Inc, Philippines
- Coalindo Energy - Indonesia
- Bhatia International Limited - India
- Bhushan Steel Limited - India
- Semirara Mining Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- Latin American Coal - Colombia
- GVK Power & Infra Limited - India
- Singapore Mercantile Exchange
- Timah Investasi Mineral - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Indonesian Coal Mining Association
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Intertek Mineral Services - Indonesia
- Attock Cement Pakistan Limited
- Bharathi Cement Corporation - India
- Africa Commodities Group - South Africa
- Economic Council, Georgia
- SMC Global Power, Philippines
- CIMB Investment Bank - Malaysia
- Siam City Cement - Thailand
- Ambuja Cements Ltd - India
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- Central Java Power - Indonesia
- Sojitz Corporation - Japan
- Agrawal Coal Company - India
- Binh Thuan Hamico - Vietnam
- Vedanta Resources Plc - India
- Parliament of New Zealand
- PNOC Exploration Corporation - Philippines
- San Jose City I Power Corp, Philippines
- PTC India Limited - India
- Toyota Tsusho Corporation, Japan
- Meralco Power Generation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- Power Finance Corporation Ltd., India
- Bangladesh Power Developement Board
- IEA Clean Coal Centre - UK
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Iligan Light & Power Inc, Philippines
- Indian Oil Corporation Limited
- Oldendorff Carriers - Singapore
- White Energy Company Limited
- Ministry of Finance - Indonesia
- Makarim & Taira - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bukit Makmur.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Standard Chartered Bank - UAE
- Mercator Lines Limited - India
- Bhoruka Overseas - Indonesia
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Planning Commission, India
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- Mintek Dendrill Indonesia
- Marubeni Corporation - India
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Petron Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- PowerSource Philippines DevCo
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- Kobexindo Tractors - Indoneisa
- Romanian Commodities Exchange
- The University of Queensland
- Dalmia Cement Bharat India
- Goldman Sachs - Singapore
- Formosa Plastics Group - Taiwan
- McConnell Dowell - Australia
- Borneo Indobara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Electricity Authority, New Zealand
- Tata Chemicals Ltd - India
- Altura Mining Limited, Indonesia
- LBH Netherlands Bv - Netherlands
- Thiess Contractors Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Mjunction Services Limited - India
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- Indian Energy Exchange, India
- ICICI Bank Limited - India
- Savvy Resources Ltd - HongKong
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- Meenaskhi Energy Private Limited - India
- Price Waterhouse Coopers - Russia
- Electricity Generating Authority of Thailand
- OPG Power Generation Pvt Ltd - India
- Independent Power Producers Association of India
- ASAPP Information Group - India
- Deloitte Consulting - India
- Star Paper Mills Limited - India
- Kartika Selabumi Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jaiprakash Power Ventures ltd
- CNBM International Corporation - China
- India Bulls Power Limited - India
- Directorate Of Revenue Intelligence - India
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- Vijayanagar Sugar Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- Merrill Lynch Commodities Europe
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