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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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Friday, 05 December 14
CHINESE SPECIAL STEEL MAKERS' RISK PROFILES MORE RESILIENT - FITCH
Fitch Ratings says the risk profiles of Chinese makers of special steel, especially high-end products, are more like those of manufacturers and mor ...
Friday, 05 December 14
U.S. YEAR-TO-DATE COAL PRODUCTION REACHED AROUND 905 MMST - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19 million short tons (mmst) of coal i ...
Thursday, 04 December 14
CAPE MARKET IS DEVELOPING FROM BAD TO WORSE
Handy
The Atlantic market has been pretty stable and balanced this week, Fearnleys AS says in its latest weekly report.
The broker furt ...
Thursday, 04 December 14
DRY BULK MARKET; ANOTHER DISAPPOINTING WEEK
COALspot.com: For those who have been hoping to see alignment of freight direction across the Dry Bulk market, this must have been another disappoi ...
Wednesday, 03 December 14
PROGRESSING SMELTER PROJECTS IN INDONESIA
Press Release: Indonesia’s ban on ‘raw mineral export’ that was designed to encouraging downstream investment in mineral processi ...
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- Minerals Council of Australia
- Parry Sugars Refinery, India
- Mercator Lines Limited - India
- Latin American Coal - Colombia
- Vizag Seaport Private Limited - India
- Bhoruka Overseas - Indonesia
- India Bulls Power Limited - India
- The Treasury - Australian Government
- Energy Development Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Banpu Public Company Limited - Thailand
- Bangladesh Power Developement Board
- Coastal Gujarat Power Limited - India
- SMC Global Power, Philippines
- Salva Resources Pvt Ltd - India
- VISA Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Port Waratah Coal Services - Australia
- Uttam Galva Steels Limited - India
- Aditya Birla Group - India
- Price Waterhouse Coopers - Russia
- Dalmia Cement Bharat India
- Antam Resourcindo - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Barasentosa Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- PowerSource Philippines DevCo
- ASAPP Information Group - India
- Wilmar Investment Holdings
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Siam City Cement - Thailand
- Petron Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Simpson Spence & Young - Indonesia
- International Coal Ventures Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- PTC India Limited - India
- Marubeni Corporation - India
- Chamber of Mines of South Africa
- Kobexindo Tractors - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SN Aboitiz Power Inc, Philippines
- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- New Zealand Coal & Carbon
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Merrill Lynch Commodities Europe
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Independent Power Producers Association of India
- Africa Commodities Group - South Africa
- Kideco Jaya Agung - Indonesia
- Anglo American - United Kingdom
- Mintek Dendrill Indonesia
- Ministry of Mines - Canada
- Eastern Energy - Thailand
- Star Paper Mills Limited - India
- Kapuas Tunggal Persada - Indonesia
- Madhucon Powers Ltd - India
- GAC Shipping (India) Pvt Ltd
- Maheswari Brothers Coal Limited - India
- Central Electricity Authority - India
- Miang Besar Coal Terminal - Indonesia
- GVK Power & Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Goldman Sachs - Singapore
- MS Steel International - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Wood Mackenzie - Singapore
- Sojitz Corporation - Japan
- ICICI Bank Limited - India
- Sakthi Sugars Limited - India
- Indo Tambangraya Megah - Indonesia
- SMG Consultants - Indonesia
- Intertek Mineral Services - Indonesia
- Thiess Contractors Indonesia
- Aboitiz Power Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Sarangani Energy Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Bhatia International Limited - India
- Sinarmas Energy and Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- PNOC Exploration Corporation - Philippines
- Georgia Ports Authority, United States
- The University of Queensland
- PetroVietnam Power Coal Import and Supply Company
- Samtan Co., Ltd - South Korea
- Siam City Cement PLC, Thailand
- Videocon Industries ltd - India
- The State Trading Corporation of India Ltd
- Medco Energi Mining Internasional
- Leighton Contractors Pty Ltd - Australia
- Bayan Resources Tbk. - Indonesia
- Jaiprakash Power Ventures ltd
- Straits Asia Resources Limited - Singapore
- Energy Link Ltd, New Zealand
- Attock Cement Pakistan Limited
- Therma Luzon, Inc, Philippines
- Malabar Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Borneo Indobara - Indonesia
- Eastern Coal Council - USA
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- Electricity Generating Authority of Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Holcim Trading Pte Ltd - Singapore
- Sical Logistics Limited - India
- Deloitte Consulting - India
- GMR Energy Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Central Java Power - Indonesia
- Global Coal Blending Company Limited - Australia
- Formosa Plastics Group - Taiwan
- Cigading International Bulk Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- Ceylon Electricity Board - Sri Lanka
- Gujarat Mineral Development Corp Ltd - India
- Electricity Authority, New Zealand
- Meralco Power Generation, Philippines
- Timah Investasi Mineral - Indoneisa
- Altura Mining Limited, Indonesia
- Interocean Group of Companies - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- OPG Power Generation Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Cement Manufacturers Association - India
- Mercuria Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Global Business Power Corporation, Philippines
- Indonesian Coal Mining Association
- Standard Chartered Bank - UAE
- Binh Thuan Hamico - Vietnam
- Lanco Infratech Ltd - India
- Indika Energy - Indonesia
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Grasim Industreis Ltd - India
- Australian Coal Association
- Planning Commission, India
- Bukit Makmur.PT - Indonesia
- Vedanta Resources Plc - India
- London Commodity Brokers - England
- Directorate General of MIneral and Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- White Energy Company Limited
- Xindia Steels Limited - India
- Toyota Tsusho Corporation, Japan
- Orica Australia Pty. Ltd.
- Indian Oil Corporation Limited
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Semirara Mining and Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Coalindo Energy - Indonesia
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Gujarat Sidhee Cement - India
- Savvy Resources Ltd - HongKong
- Parliament of New Zealand
- Mjunction Services Limited - India
- Australian Commodity Traders Exchange
- Pendopo Energi Batubara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Tamil Nadu electricity Board
- Larsen & Toubro Limited - India
- Romanian Commodities Exchange
- Bhushan Steel Limited - India
- Rio Tinto Coal - Australia
- Indian Energy Exchange, India
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Transport, Egypt
- Tata Chemicals Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Riau Bara Harum - Indonesia
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Coal and Oil Company - UAE
- Global Green Power PLC Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Heidelberg Cement - Germany
- Posco Energy - South Korea
- Indogreen Group - Indonesia
- Rashtriya Ispat Nigam Limited - India
- IEA Clean Coal Centre - UK
- Carbofer General Trading SA - India
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- Chettinad Cement Corporation Ltd - India
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