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Saturday, 06 December 14
TANKER FLOATING STORAGE PLAYS COULD COME INTO PLAY IF VLCC RATES STAY AT CURRENT LEVEL - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Contango: A phenomenon in commodities futures price curves where the delivery price of a futures contract is greater than the current price. With that definition out of the way, it’s worth taking a look at potential tanker storage plays in the light of the latest demise of oil prices, one not seen after the super-contango on both the Brent and West Texas Intermediate (WTI) forward curves of the 2008 markets’ crash. According to a recent report from Mcquilling Services, “ubiquitous bullish sentiment developed as the price bottom was established and the contango steepened. Both onshore and offshore storage plays were profitable during the super-contango of 2009 as the depth of the curve left plenty of profit potential”.
Mcquilling had looked into contango plays at the end of September. As it states, “when the first note was released, the Brent front month futures contract was trading at US $97.63 and WTI was trading at US $91.70, in the upper range of a multi-year rally. During this time, the Brent curve had moved into contango producing a flurry of speculation about the formation’s bullish effect, which led crude oil stakeholders to scrutinize the market for storage opportunities. Since the release of the first note, both Brent and WTI have experienced steep price declines. Comparing the 2009 and September 2014 contangos illustrates a couple of key conditions that were absent in the September contango. The first and most important consideration is the depth of the contango. In 2009, the forward curve was steep enough to cover associated storage and carrying costs. A storage play could have been implemented in 2009 based purely off the market contango regardless of future price direction. Crude oil could have been purchased in the spot market and simultaneously sold in the futures market at a profit. The September 2014 contango did not provide enough future premiums to hedge the exposure at a profit”, said Mcquilling.
It added that “second, the price level at which a contango forms is a critical consideration. In 2009, the contango took shape after a meaningful sell-off as markets recovered from the 2008 economic collapse. As the global economy recovered, so did crude oil demand. From the bottom of the collapse, abundant upside potential encouraged traders to consider storage plays. In contrast, the September 2014 contango formed towards the top of a multi-year price range amidst a period of oversupply and decreasing demand. As global crude oil production outpaced demand, crude oil surpluses amassed and Brent and WTI prices fell. An unhedged storage play implemented in September would have yielded extremely poor results. Both Brent and WTI have continued to weaken since September as a result of the global oversupply of crude oil. On November 27, 2014, the Organization of Petroleum Exporting Countries (OPEC) members met to debate whether to cut production to steady prices or to maintain production output to marginalize US shale production. OPEC decided to maintain its production ceiling for 2015 forcing Brent and WTI to the lowest price levels since July 2009. Both Brent and WTI are now in contango and, if history repeats itself, traders will be looking for storage opportunities. By applying the lessons learned from the September contango, we evaluate the current contangos to determine if floating storage plays make sense under current market conditions”, it noted.
Carrying Cost Assumptions
European Interest Rate Blend: 1.88%/yr
VLCC Capacity: 2,000,000 barrels
VLCC One-year Time Charter: US $31,500/day
Price of Crude: US $70.00/barrel
Total Carrying Cost One-year Time Charter: US $0.58 per barrel month
According to Mcquilling’s analysis “neither Brent nor WTI are presently showing enough of a future premium to front month prices to justify implementing a floating storage play. We assume the average blended cost per VLCC on a one-year time charter at US $31,500/day. The cost of carry per barrel per month utilizing a one-year time charter amounts to US $0.58 per barrel month. WTI has been trading at a sharp discount to Brent this year because of increased North American production and decreasing foreign imports. Less US reliance on foreign crudes has created a price polarity between the two benchmarks. December 2016 Brent is trading at a US $8.61 premium to January 2015 while WTI is producing only a US $5.17 premium through the same period. We have been monitoring the Brent/WTI spread since the beginning of the price decline in July and have identified a strong correlation between falling prices and a tightening Brent/WTI Benchmark spread. From a high near US $11 in July, the spread traded down to US $3.11 on November 11, 2014. Regression analysis on the price data yields an 80% correlation between falling prices and a tightening spread”.
Mcquilling concluded that “the relative price level at which these current contangos exist does fit the criteria for considering storage plays. In the 2009 super-contango, the curve first flattened before moving into steep contango. Once the bottom was put in 1Q 2009, the back of the curve strengthened and storage plays moved in-the-money. Over the past five months, both benchmarks have lost approximately 35% of their value. If demand is perceived to improve after the bottom of the sell-off is put in, a similar strengthening of the back of the curve may emerge making floating storage plays feasible again. While floating storage is not economically feasible based on the current contangos in Brent and WTI, floating storage may be in play if one-year VLCC time charter rates remain at current levels and the Brent curve stiffens as a result of perceived future demand growth or supply constraints. It is unlikely that the WTI contango will yield a strong case for floating storage due to the isolationist nature of the US crude oil supply market. The price polarity between Brent and WTI further proves the point that not all contangos are created equal”, the analysis concluded.
Source: Nikos Roussanoglou, Hellenic Shipping News
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Monday, 15 December 14
INDONESIAN COAL PRICE REFERENCE CRASHES THROUGH $65
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down the coal bench mark price once again in December. HBA for t ...
Monday, 15 December 14
CFR SOUTH CHINA COAL SWAP LOST $3.37 M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased by US$ 3,37 (-5.33%) month over month and US$ 1.58 (-2.57%) ...
Monday, 15 December 14
Q1' 15 FOB NEWCASTLE COAL SWAP CLOSED AT $ 51.45 ON 12 DEC
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery lost US$ 1.45 per MT (-2.74%) closed at US$ 51.45 on 12 December month over ...
Sunday, 14 December 14
FREIGHT RATES ARE EXPECTED TO BE SOFT NEXT WEEK
COALspot.com: The Baltic Dry Index (BDI), a measure of commodity-shipping costs, fell 12.12 pct to 863 points week ending 12 December 2014.
Th ...
Friday, 12 December 14
LIMITED TRADING AND AN OVERSUPPLY OF TONNAGE PUSHED HANDY SIZE SHIPS TO DOWN IN USG
Handy
We have seen the TA spot market come down this week lead by limited trading and an oversupply of tonnage in the USG, Fearnleys said in its ...
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- Billiton Holdings Pty Ltd - Australia
- Madhucon Powers Ltd - India
- Riau Bara Harum - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kideco Jaya Agung - Indonesia
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- Goldman Sachs - Singapore
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- Chamber of Mines of South Africa
- GN Power Mariveles Coal Plant, Philippines
- Bayan Resources Tbk. - Indonesia
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- Altura Mining Limited, Indonesia
- London Commodity Brokers - England
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- International Coal Ventures Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
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- Pipit Mutiara Jaya. PT, Indonesia
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- PTC India Limited - India
- Price Waterhouse Coopers - Russia
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- Power Finance Corporation Ltd., India
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- Minerals Council of Australia
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- Indonesian Coal Mining Association
- Kepco SPC Power Corporation, Philippines
- McConnell Dowell - Australia
- Africa Commodities Group - South Africa
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- Indian Energy Exchange, India
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- Mercuria Energy - Indonesia
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- Eastern Energy - Thailand
- Ministry of Mines - Canada
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- Sojitz Corporation - Japan
- VISA Power Limited - India
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- Posco Energy - South Korea
- Kohat Cement Company Ltd. - Pakistan
- MS Steel International - UAE
- Sarangani Energy Corporation, Philippines
- Meralco Power Generation, Philippines
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- Ind-Barath Power Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
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- Mjunction Services Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Indogreen Group - Indonesia
- Bukit Baiduri Energy - Indonesia
- Toyota Tsusho Corporation, Japan
- Directorate General of MIneral and Coal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- European Bulk Services B.V. - Netherlands
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- Dalmia Cement Bharat India
- Aboitiz Power Corporation - Philippines
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- AsiaOL BioFuels Corp., Philippines
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
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- Bulk Trading Sa - Switzerland
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- Samtan Co., Ltd - South Korea
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- Therma Luzon, Inc, Philippines
- Maheswari Brothers Coal Limited - India
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- Commonwealth Bank - Australia
- Indian Oil Corporation Limited
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- Romanian Commodities Exchange
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- Banpu Public Company Limited - Thailand
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- IEA Clean Coal Centre - UK
- Mintek Dendrill Indonesia
- Petron Corporation, Philippines
- Bhatia International Limited - India
- India Bulls Power Limited - India
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Neyveli Lignite Corporation Ltd, - India
- Semirara Mining Corp, Philippines
- New Zealand Coal & Carbon
- Karbindo Abesyapradhi - Indoneisa
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- Thai Mozambique Logistica
- GMR Energy Limited - India
- Sindya Power Generating Company Private Ltd
- Singapore Mercantile Exchange
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- Ministry of Finance - Indonesia
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Energy Development Corp, Philippines
- Coastal Gujarat Power Limited - India
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- Renaissance Capital - South Africa
- Global Green Power PLC Corporation, Philippines
- The Treasury - Australian Government
- Global Coal Blending Company Limited - Australia
- PNOC Exploration Corporation - Philippines
- Tamil Nadu electricity Board
- Georgia Ports Authority, United States
- Coalindo Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- ASAPP Information Group - India
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- Asmin Koalindo Tuhup - Indonesia
- Kobexindo Tractors - Indoneisa
- Bangladesh Power Developement Board
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- SMC Global Power, Philippines
- Vizag Seaport Private Limited - India
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- Heidelberg Cement - Germany
- Eastern Coal Council - USA
- Mercator Lines Limited - India
- Siam City Cement - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- CIMB Investment Bank - Malaysia
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- The State Trading Corporation of India Ltd
- Savvy Resources Ltd - HongKong
- LBH Netherlands Bv - Netherlands
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- CNBM International Corporation - China
- Rio Tinto Coal - Australia
- Thiess Contractors Indonesia
- Jindal Steel & Power Ltd - India
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- White Energy Company Limited
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- GAC Shipping (India) Pvt Ltd
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- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Mining Services - Indonesia
- Attock Cement Pakistan Limited
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- Siam City Cement PLC, Thailand
- Australian Coal Association
- Intertek Mineral Services - Indonesia
- Xindia Steels Limited - India
- Electricity Authority, New Zealand
- Latin American Coal - Colombia
- The University of Queensland
- Bhushan Steel Limited - India
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