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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, 28 November 14
NEW BIMCO CLAUSE AIMS TO REDUCE SUPPLIERS' RELIANCE ON SHIP ARREST FOR CHARTERERS' UNPAID BUNKERS
KNOWLEDGE TO ELEVATE
Ship owners can, on occasion, find themselves in the invidious position of suffering unexpected loss of hire due to a tim ...
Friday, 28 November 14
JSW ENERGY AND GRM RESOURCES JOIN GLOBALCOAL
COALspot.com: globalCOAL® announced yesterday that two new Market Members have joined its online coal trading platform. According globaCOAL&rsq ...
Thursday, 27 November 14
MINING SERVICES TAX SPIKED BY 233% - BISNIS INDONESIA
COALspot.com: The Energy and Mineral Resources Department of Indonesia said the tax contribution from mining services sector in the 3rd Q 2014 ...
Thursday, 27 November 14
PANAMAX : EXPECTATION'S FOR A STRONG END OF YEAR RUSH, DISAPPEAR DAY BY DAY - FEARNLEYS
Handy
“We have experienced a firming market the last couple of weeks. More activity from cargo owners in the Atlantic and less available to ...
Wednesday, 26 November 14
OVERSUPPLY OF TONNAGE PUSHED PANAMAX SEGMENT DOWN FOR ANOTHER WEEK
COALspot.com: The Dry Bulk market managed to reverse its course from the week prior and with the sole exception of the Panamax segment, we witnesse ...
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- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Coal and Oil Company - UAE
- Kaltim Prima Coal - Indonesia
- Malabar Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Indika Energy - Indonesia
- Renaissance Capital - South Africa
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- Trasteel International SA, Italy
- SN Aboitiz Power Inc, Philippines
- Parry Sugars Refinery, India
- Makarim & Taira - Indonesia
- Aboitiz Power Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- The State Trading Corporation of India Ltd
- Sakthi Sugars Limited - India
- Kapuas Tunggal Persada - Indonesia
- Maheswari Brothers Coal Limited - India
- Indonesian Coal Mining Association
- Bhatia International Limited - India
- Standard Chartered Bank - UAE
- Lanco Infratech Ltd - India
- Chamber of Mines of South Africa
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Port Waratah Coal Services - Australia
- Rashtriya Ispat Nigam Limited - India
- IHS Mccloskey Coal Group - USA
- Billiton Holdings Pty Ltd - Australia
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Anglo American - United Kingdom
- Ministry of Transport, Egypt
- Posco Energy - South Korea
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Intertek Mineral Services - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Meralco Power Generation, Philippines
- Ambuja Cements Ltd - India
- Uttam Galva Steels Limited - India
- Attock Cement Pakistan Limited
- Indian Energy Exchange, India
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- Xindia Steels Limited - India
- SMC Global Power, Philippines
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Antam Resourcindo - Indonesia
- Edison Trading Spa - Italy
- India Bulls Power Limited - India
- Global Coal Blending Company Limited - Australia
- The University of Queensland
- Straits Asia Resources Limited - Singapore
- IEA Clean Coal Centre - UK
- Ceylon Electricity Board - Sri Lanka
- Directorate Of Revenue Intelligence - India
- Energy Development Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Electricity Generating Authority of Thailand
- GN Power Mariveles Coal Plant, Philippines
- Binh Thuan Hamico - Vietnam
- Central Java Power - Indonesia
- PowerSource Philippines DevCo
- Alfred C Toepfer International GmbH - Germany
- Sical Logistics Limited - India
- Mintek Dendrill Indonesia
- Simpson Spence & Young - Indonesia
- CNBM International Corporation - China
- Vizag Seaport Private Limited - India
- Larsen & Toubro Limited - India
- Rio Tinto Coal - Australia
- Minerals Council of Australia
- Manunggal Multi Energi - Indonesia
- ICICI Bank Limited - India
- Gujarat Sidhee Cement - India
- Borneo Indobara - Indonesia
- McConnell Dowell - Australia
- Parliament of New Zealand
- Coastal Gujarat Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Bulk Trading Sa - Switzerland
- New Zealand Coal & Carbon
- Gujarat Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Leighton Contractors Pty Ltd - Australia
- Interocean Group of Companies - India
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- Riau Bara Harum - Indonesia
- Goldman Sachs - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Aditya Birla Group - India
- Salva Resources Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- Australian Commodity Traders Exchange
- Ministry of Finance - Indonesia
- GVK Power & Infra Limited - India
- The Treasury - Australian Government
- Directorate General of MIneral and Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Merrill Lynch Commodities Europe
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Australian Coal Association
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- Banpu Public Company Limited - Thailand
- Sojitz Corporation - Japan
- San Jose City I Power Corp, Philippines
- Samtan Co., Ltd - South Korea
- Tamil Nadu electricity Board
- Videocon Industries ltd - India
- White Energy Company Limited
- Kohat Cement Company Ltd. - Pakistan
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- GMR Energy Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Toyota Tsusho Corporation, Japan
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Wilmar Investment Holdings
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Marubeni Corporation - India
- Metalloyd Limited - United Kingdom
- Altura Mining Limited, Indonesia
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Deloitte Consulting - India
- MS Steel International - UAE
- Maharashtra Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- Commonwealth Bank - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- International Coal Ventures Pvt Ltd - India
- Power Finance Corporation Ltd., India
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- Indian Oil Corporation Limited
- Agrawal Coal Company - India
- Bhushan Steel Limited - India
- Medco Energi Mining Internasional
- Jindal Steel & Power Ltd - India
- PNOC Exploration Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Economic Council, Georgia
- Bukit Baiduri Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Iligan Light & Power Inc, Philippines
- ASAPP Information Group - India
- Kumho Petrochemical, South Korea
- Krishnapatnam Port Company Ltd. - India
- Bahari Cakrawala Sebuku - Indonesia
- Formosa Plastics Group - Taiwan
- Global Green Power PLC Corporation, Philippines
- Baramulti Group, Indonesia
- Siam City Cement PLC, Thailand
- Bharathi Cement Corporation - India
- AsiaOL BioFuels Corp., Philippines
- Africa Commodities Group - South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Cement Manufacturers Association - India
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Latin American Coal - Colombia
- OPG Power Generation Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Planning Commission, India
- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- Coalindo Energy - Indonesia
- Madhucon Powers Ltd - India
- European Bulk Services B.V. - Netherlands
- PTC India Limited - India
- Mercuria Energy - Indonesia
- Carbofer General Trading SA - India
- Singapore Mercantile Exchange
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Timah Investasi Mineral - Indoneisa
- Indogreen Group - Indonesia
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- Bangladesh Power Developement Board
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