Oilmarket Blog

BLOG THEMA'S : Financial markets

Tank Terminal Market Model – Part 1

Gepubliceerd Jacob on 3 december 2018 15:03:16

INTRODUCTION

 

Last week was a short review of the profit drivers for physical traders, where we explained in short how traders make profit. There are a lot of different factors influencing the tank storage sector. Mostly the imbalances in the sector create opportunities for financial players. The market appears to be complex and demonstrating a lack of transparency. PJK International has developed a Tank Terminals Commercial Performance Model to quickly gain insight and a higher proficiency of the tank storage market. This is the first part related to the Tank Terminal Market Model, next week we will publish the second part for you to be able to connect the dots.

 

MARKET FUNDAMENTALS

 

First we describe the market fundamentals as shown in the image below. Relevant market fundamentals for the oil storage business are the shape of the forward curve, the competitive market structure and the logistical factors supply, demand, imbalances and trade flows. The shape of the forward curve is determined on oil futures markets. The oil price forward curve can be upward sloping (contango) or downward sloping (backwardation). In a backwardated market is less demand for tank storage than in case of a contango. Inventory levels are also lower in a backwardation compared to a contango. Both demand and tank availability are therefore affected and this influences the commercial setting.
 

 

Furthermore the competitive market structure consists of a supply-side and demand-side market structure. Tank capacity and market shares of various terminal operators are key factors that determine the supply-side competition. The number of players, their size and diversity are key factors on the demand-side of the market. Both demand- and supply-side competition influence commercial performance of the terminals. And also Tank terminals are part of the oil products supply chain and therefore logistical factors such as local product demand, regional refinery output, imbalances and trade flows are very relevant. Developments in these factors influence the demand and requirements for tank terminal capacity.
MARKET DYNAMICS

 

Besides the market fundamentals we have to take into consideration the market dynamics. Relevant market dynamics are inventory levels, arbitrage and trade flows, changes in product specifications and variation in vessel sizes. These market dynamics have a direct influence on operations and on terminal requirements. A terminal that can accommodate and can adapt better and faster to these dynamics compared to competitors will likely show superior commercial performance. From the previous section you could already see that market dynamics are linked to market fundamentals.

 

CONCLUSION

 

The market fundamentals and the market dynamics are important building blocks for PJK’s commercial performance model. Next week we will go more into detail regarding this model. If you have any questions regarding the above mentioned subject please do not hesitate to contact me.

 

Thank you very much for your attention.

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

Profit drivers for physical traders

Gepubliceerd Jacob on 23 november 2018 15:53:29

 

Download TT week report

 

 

INTRODUCTION

This is the second blog article of our series of 5 blog articles made for you to be able to better understand the drivers and the complexity of the tank storage industry. In the first article we took a closer look at the functions of a tank terminal. Click here to be able to read the first blog article.

HOW DO TRADERS MAKE MONEY?

Traders can take a physical (&paper) position and ‘buy low / sell high’ to be able to make profit. There are several strategies to profit from trading physical commodities. We can distinguish three main strategies:

1. Arbitrage
2. Speculation
3. Optionality

 

ARBITRAGE

Arbitrage is a very simple idea, it is really taking advantage in the difference of price on essentially the same product, to make profit. For example if you would have the price of gasoline in two different geographical markets. These different markets can be the Netherlands (A) and the US (B). If in market A the price would 1 dollar and in market B the price would be 2 dollars, then you can profit from the difference in price. The three main types of arbitrage are:

 

1. Geographical arbitrage
2. Time arbitrage
3. Technical arbitrage (blending)

 

SPECULATION

The U.S. Commodities Future Trading Commission defines a speculator as a trader who does not hedge, but who trades with the objective of achieving profits through the successful anticipation of price movements. Traders take a position in anticipation of moves in prices/spreads. For example with the gasoil price as is shown in the chart below:

 

 

OPTIONALITY

As for speculation, also for optionality volatility is key. Profit can come from market opportunities, where traders can limit losses if market turns against position. Three examples are:

 

1. Optionality during geographic arbitrage trade
– For example divert ship if there is a better deal and reduce costs
2. Optionality during contango storage
– Contango means that the spot price of oil is lower than future contract for oil
3. Optionality in transport mode
– Can be applied when transport costs are market driven and volatile

 

CONCLUSION

More familiarity within this complex market can provide you with quick insights derived from the financial markets. By watching and following oil prices spreads and market volatility can provide you with a better picture of the market. Other trends like backwardation and contango are also important to understand and analyse, to be able to make intelligent decisions. More to come in the next blog article next week, meanwhile feel free to download last week’s tank terminal report. And try to test your comprehension of the subjects discussed.

For more information or any questions please do not hesitate to contact us.

 

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

functions of tank terminals

Gepubliceerd Jacob on 19 november 2018 10:27:50

Download Weekly Report

Introduction

During the coming weeks we will provide you with relevant information regarding the tank storage market and its influences and opportunities. This week we will focus on the different functions a tank terminal. It is the first of 5 blog articles for you to be able to better understand the drivers of this sector and help you with your commercial decisions.

 

Functions of a terminal

Tank terminals can have various functions, although commercial clients’ operational requirements tend to focus on the logistics/hub and trading platform functions. These three main functions are:

  • Logistics/hub – function
  • Trading platform
  • Strategic storage

Logistics/hub function

The logistics/hub function is firstly related to the make/break and bulk of the product(s). In addition we can observe an integrated approach between transport modalities such as sea, rail, road and pipeline. Also the correct integration with an industrial complex and buffer stock(s) are considered to be part of the logistical chain of a tank terminal.

 

Trading platform & Strategic storage

The tank storage activities can also be influenced by the financial markets, as investors, traders and other financial intermediates are active on various trading platforms. How do traders make money and why are they interested in the tank storage industry? Mainly by taking a physical (&paper) position(s), traders take advantage of a price differences between two or more instruments. They will make profit if there is a combination of matching deals that capitalize upon the imbalance. As a trading platform four important factors can be described:

 

  1. Physical arbitrage
  2. Blending
  3. Contango storage
  4. Optionality

 

How does physical arbitrage work? During arbitrage the global commodity traders seek to identify and respond to supply and demand differentials between linked markets. Trading firms are essentially in the business of transforming commodities in space (logistics), in time (storage) and in form (processing). Traders with access to physical oil and storage can profit in a contango market, as the futures price of a commodity is above the expected spot price, and people are willing to pay more for a commodity at some point in the future than the actual expected price of the commodity. Besides this also optionality is very important as it builds in flexibility to profit from market opportunities and limits losses if the market turns against positions.

 

Conclusion

By focussing on the things that matter we can understand better how our clients are making money. As a result it can help shape your business, to have a better insight and to be able to make better operational and commercial decisions. By watching market indicators like the oil price level, market volatility and the forward curves it will provide a better picture of the market. This directly provides in-depth insights into the tank storage market developments. Our weekly report is specifically designed to clarify the mentioned above, and to provide a weekly market snapshot. If you would like more information please do not hesitate to contact me.

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

Review week 15/04 Crude oil prices ended a 7-week losing streak

Gepubliceerd Jacob on 19 januari 2015 13:25:30

Last week, oil prices showed a volatile reaction. Brent crude opened the week around $50/bbl but its weekly low lay at $45.19/bbl. Eventually, Brent crude March settled at $50.17/bbl, ending a seventh straight week losing streak.

Lees meer...

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

Review week 50 Oil prices slumped another week

Gepubliceerd Jacob on 15 december 2014 13:30:47

Both crude – and product prices extended losses on the outlook of a surplus in 2015 in an already ample supplied market.

Lees meer...

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

Review week 46 Oil prices pared losses last week

Gepubliceerd Jacob on 24 november 2014 13:36:29

Oil prices were relatively volatile but eventually settled close to last week’s open prices. Early in the week, oil prices dropped on macro-data from key consuming countries and regions such Japan, China and Eurozone indicated that indicated weaker oil demand

Lees meer...

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

Oil prices were relatively stable last week

Gepubliceerd Jacob on 4 november 2014 13:39:55

Crude – and product prices were relatively stable last week. A ‘bearish’ market outlook from the American investment bank Goldman Sachs early in the week weighed on prices.

Lees meer...

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

Hogere prijzen houden aan

Gepubliceerd Jacob on 28 oktober 2014 15:23:39

De vraag op de (Rijn)transportmarkt richting Duitsland, Frankrijk en Zwitserland concentreerde zich op belading eind oktober en begin november.

Lees meer...

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

Review week 42: Oil prices keep going sideways on low level

Gepubliceerd Jacob on 27 oktober 2014 15:25:44

Crude – and product prices stabilized around lowest levels in four years last week.

Lees meer...

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen

ARA gasoline stocks hit three-year low

Gepubliceerd Jacob on 23 oktober 2014 17:11:08

LONDON, Oct 16 (Reuters) – Gasoline stocks at Europe’s Amsterdam-Rotterdam-Antwerp hub fell to a three-year low this week of 490,000 tonnes, according to data from Dutch-based oil consultancy PJK International.

Lees meer...

Artikel heeft nog geen reacties. Klik om te lezen/reacties te plaatsen