The world is a confusing and tangled web of interconnections. One such set of interconnections relates to the cost and storage of commodities and how it feeds into the wider economy.
For years we’ve made a simple point: the return on commodities is pretty indicative of the natural rate of return. When the return on money beats the return on holding commodity inventories, commodity companies are encouraged to drawdown on inventories in a bid to turn them into higher yielding monetary holdings. All of which has two effects.
In the first instance this encourages a liquidation effect. Commodity prices fall as the market scrambles to swap oil for cash reserves. In the second instance it reduces the amount of buffer commodity stocks in the economy, because holding anything other than emergency reserves is considered a capital cost. Read more
The summer silly season is nearly upon us, so what chance a reprise of this Daily Mail classic?
From November 2009 when Britain’s tabloids met contango with predictable consequences: Read more
At least one leading oil tanker operator is likely to follow collapsed smaller operators into insolvency, senior figures in the industry believe, as the sector is swamped by oversupply, the FT reports. The executives were speaking amid a slump that has sent the rates paid to charter ships way below vessel operating expenses. The average short-term spot market rate to charter a very large crude carrier – the largest widely-used class – from the Gulf to Far East on Friday stood at just $1,795 per day, compared with the $29,800 that Frontline, the biggest listed tanker operator by fleet capacity, recently said such vessels needed to break even. Nasdaq-listed Omega Navigation, Netherlands-based Marco Polo Seatrade and several other small operators have already been forced into bankruptcy protection. Cyprus-based Ocean Tankers, which made a €19.6m net loss for the first half on €9.77m income, has had several of its ships arrested – held under court orders by creditors – during port calls this year. Now executives predict that far larger names are likely to follow. Moody’s last week downgraded one operator facing acute challenges – New York-listed General Maritime – to Caa3, only just above default.
Senior figures in the shipping industry believe at least one leading oil tanker operator is likely to follow collapsed smaller operators into insolvency, the FT reports, as the sector is swamped by oversupply. Chief executives from Frontline, Overseas Shipholding Group, and Teekay Tankers all pointed to the risk of collapse moving to larger operators after several smaller peers, such as Omega Navigation and Marco Polo Seatrade, were forced into bankruptcy protection. The rates paid to charter ships have fallen below vessel operating expenses. The average short-term spot market rate to charter a very large crude carrier – the largest widely-used class – from the Gulf to Far East on Friday stood at just $1,795 per day, compared with the $29,800 that Frontline, the biggest listed tanker operator by fleet capacity, recently said such vessels needed to break even.
Icap’s shipping analysts have on Monday come up with an interesting hypothetical take on how an extended Libyan crisis might impact the shipping market.
In a nutshell, think more bearish than bullish for shipping rates. Read more
Boeing has clinched a fiercely contested contract to supply the US Air Force with refuelling aircraft, beating rival EADS, the European aerospace and defence company, to win the $35bn prize, the FT reports. The victory caps a decade of false starts, political controversy and international intrigue over which of the two dominant global aerospace companies would eventually build a new fleet of “flying petrol stations” for the US military. Bloomberg adds that the Boeing win was a surprise for the aerospace industry.
The last couple of months has seen much talk in the oil markets about the unwinding of floating storage positions.
Goldman Sachs was among those who noted that crude was increasingly being moved out of tankers on account of the changing structure of the oil future curve — which had gone from a steep contango a year ago to a near flattening just one month ago. Read more
Tanker trouble was still brewing on Friday, as Frontline –the world’s biggest independent oil tanker shipping company– reported an 84 per cent fall in Q3 income with a loss of $6m.
Chief Executive Jens Martin Jensen, quoted by Reuters, said the quarter had been among the worst ever. However, he also stated that the industry was at last seeing a light at the end of the tunnel. Read more
It’s day two of the Daily Mail’s campaign against tankers parked off the British coast. In case you missed “how the Daily Mail broke the story yesterday” you might care to check out FT Alphaville’s coverage here.
The post attracted a healthy level of discourse, including the following analogy — which we like so much we mocked up graphically for readers’ pleasure (H/T Skwosh): Read more
We love talking about contango on FT Alphaville.
But no one, it turns out, can turn a nerdy market-structure story about the shape of the futures curve into an alarmist `evil speculator’ rant extraordinaire quite like the Daily Mail. Read more
Hat tip to Morgan Downey, author of Oil 101, for the following chart reflecting the still ongoing over-supply issues facing energy and tanker markets.
Most people will have heard about the dramatic collapse in dry bulk shipping rates that occurred in October/November following the paralysis that hit global trade in the weeks after the Lehman Brothers collapse. However, tanker rates didn’t respond quite as dramatically at the time.
Now, a good six months on, there is no denying tanker rates have finally responded with the same calamitous descent downwards. The fall may have been more haphazard than that of Baltic Dry — most likely due to the contango in the oil market which saw demand come in for vessels as storage — but the decline is no less serious, and is consequently creating some unusual dynamics in the energy market. Read more