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Drivers of Tank Storage Demand

Gepubliceerd Jacob on 14 mei 2018 11:22:40

Demand for tank storage capacity is heavily influenced by changes in the market environment as it alters client’s requirements and its profit potential. To identify which market variables are relevant and how these influence a terminal’s commercial performance, PJK International has developed a tank terminal market model: ‘PJK Tank Terminal Commercial Performance Model’.

In this model a number of important market variables are described and analyzed thoroughly. The most relevant are touched upon below:
1. Market structure
2. Price volatility
3. Arbitrage

Market structure

An oil price for immediate delivery is called spot price or cash price while an oil price for delivery at a specified date in the future is called a forward price. When we plot these various prices and order them from short to long term delivery, a forward curve is created.

When a futures price (second month) is below a futures spot price (first or front month), the market structure is in backwardation. In this case, the forward curve is downward sloping. When the futures spot price is below the futures price, the market structure is known as contango. In this case, the forward curve is upward sloping.

In a period of contango, oil traders are encouraged to buy oil products today and sell in the future when the spread between two months covers storage, shipping and finance costs. When this opportunity presents itself, product is being sold, shipped and stored, resulting in more business for tank storage companies. This play is known as a ‘contango storage play’ but is limited by the maximum tank storage capacity available.

In some rare occasions, when the time spread is large enough even tanker vessels are chartered by trading companies to store oil products. This is known as floating storage. In this rare environment demand for tank storage is high and pushes storage rates for spot availability. Backwardation discourages storing oil products as a trader can sell oil today at a better price than in the future.

Price volatility

Volatility is applied to describe fluctuations of oil prices and it relates to the level of uncertainty in the market. Historic volatility is calculated by the standard deviation of an oil price return series, measured during a certain time frame. There are other ways to calculate volatility i.e. looking at the daily high and low range of oil prices during a trading session or the estimated volatility of an option (implied volatility). Implied volatility offers an outlook on the expected volatility and is the opposite to historic volatility that looks back into recent history. It is important to understand that there are events that can impact the level of price volatility.

Important for tank storage companies to understand is that in times of high volatility, such as described in these three cases, trading volumes on the paper market are very high. As traders are able to make bigger profits in a high volatile regime when an old saying become reality: ‘buy low and sell high’. Taking into account that every paper position is squared by a physical position, one can understand that also physical trade will increase. More physical trade will eventually lead to more demand for tank storage capacity.

Arbitrage

There are several forms of physical arbitrage:

1. Geographical arbitrage identifies temporary price anomalies between different locations;
2. Time arbitrage seeks to benefit from the shape of the forward curve for physical delivery (see our article on market structure); and
3. Technical arbitrage seeks to benefit from the different pricing perceptions for particular commodity grades and specifications

From historical analysis we have learned that in the period between 1 January 2016 till 31 May 2017, 68% of the VLCC’s left for Singapore when the arb was open. 32% of the VLCC’s still undertook the voyage to Singapore when the arb was closed. So monitoring if arbs are open (or closed) is a good indication, to understand if trade between two regions is likely to increase. A positive trading environment, ultimately will influence tank storage dynamics.

Interested to learn what market variables impact the commercial performance, read our Tank Terminal Week Report. Contact me when you would like to receive a copy or get more information.

Jacob van den Berge (Marketing&Sales)

+31-850-662505

 

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What Drives Tank Storage Demand? Arbitrage!

Gepubliceerd Jacob on 16 oktober 2017 14:30:11

Geographical price differences will lead to increased trade! In this article we would like to highlight the subject arbitrage and what this theme has for impact on the tank storage market.

Introduction to Arbitrage Economics
In theory (Investopedia), arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar positions on different markets or in different forms. Arbitrage exists as a result of market inefficiencies.

Learn what drives tank storage demand. Join the FREE Webinar: PJK Tank Terminal Commercial Performance Model upcoming October 30th 2017.

But how does this work in practice? As commodity trading firm Trafigura describes on their website, they apply three forms of physical arbitrage:

  • Geographical arbitrage identifies temporary price anomalies between different locations;
  • Time arbitrage seeks to benefit from the shape of the forward curve for physical delivery (see our article on market structure); and
  • Technical arbitrage seeks to benefit from the different pricing perceptions for particular commodity grades and specifications.

In this article and to make things clear we will focus solely on geographical arbitrage and in particular the Northwest European Singapore arb for heavy fuel oil.

In order to calculate heavy fuel oil’s price difference between Northwest Europe or ARA and Singapore, we compare the FOB ARA spot price with FOB Singapore swap price, second month due to the duration of the voyage. The difference between these values is the spread and should be large enough to cover the trade costs.

On most occasions heavy fuel oil is shipped to Singapore in a VLCC (Very Large Crude Carrier/310 kt DWT) and loads approximately 270 kt of product. We therefore sum the VLCC freight rate, finance costs, port costs, inspection costs and demurrage to come to total trade costs. Should the spread be more than the trade costs the arb between both regions is open. When the spread is less than the trade costs the arbs is closed.

Learn what drives tank storage demand. Join the FREE Webinar: PJK Tank Terminal Commercial Performance Model upcoming October 30th 2017.

Importance of arbitrage to tank storage companies
From historical analysis we have learned that in the period between 1 January 2016 till 31 May 2017, 68% of the VLCC’s left for Singapore when the arb was open. 32% of the VLCC’s still undertook the voyage to Singapore when the arb was closed. So monitoring if arbs are open (or closed) is a good indication, to understand if trade between two regions is likely to increase. A positive trading environment, ultimately will influence tank storage dynamics.

Please note that arbitrage cannot be seen as a single indicator for business opportunities for tank storage companies. Other indicators that should be taken into account are: price volatility, market structure, and more. These subjects have been highlighted in other articles.

Source: www.trafigura.com.

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ARA gasoline stocks hit a six month high

Gepubliceerd Jacob on 26 januari 2017 17:10:08

London, 26 January (Argus) — ARA gasoline stocks stored independently in the Amsterdam-Rotterdam-Antwerp region rose to a six-month high this week, helping to push total oil product inventories to the highest since September.

Total oil products stocks in the region increased by 3pc to 5.999mn t this week. Gasoline stocks increased by 5pc to 1.22mn t despite strengthening arbitrage economics. A fleet of tankers has been loading gasoline with Brazil, Canada, Mexico, Guinea, Puerto Rico and Saudi Arabia discharge over the past seven days, but high import volumes from France, the UK and Russia pushed stock levels up. A contango in the gasoline swaps market is supporting product retention.

Naphtha inventories fell by 20pc despite inflows from Algeria and Russia. Not a single tanker loaded naphtha from ARA this week, but higher demand from local gasoline blenders and steam crackers offset import volumes. Higher LPG values relative to naphtha incentivised steam crackers across Europe to increase the share of naphtha in their feedstock slate, supporting naphtha demand from the petrochemical sector.

Jet fuel stocks increased by 35pc as shipments were delivered from South Korea. Demand remained fairly weak outside the peak flying season and most suppliers have covered their requirements for early February.

Fuel oil inventories fell by 12pc compared with a week earlier. Product came from Finland, Poland, Russia and the UK, but larger quantities were loaded this week, on to a very large crude carrier (VLCC) heading to Singapore and a Suezmax with west Africa discharge. Arbitrage economics is weakening, but previously booked tankers are still loading fuel oil.

Gasoil stocks climbed to a four-month high as the firm contango on Ice gasoil futures supported movement of product into storage. Low Rhine river water levels continued to restrict barge movements out of ARA. The arrival of BP’s diesel-laden VLCC Eco Seas into Rotterdam next week will likely push gasoil stocks levels higher.

Argus editor: Benoit Petre

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Gasoil drives ARA stocks to 4-month high

Gepubliceerd Jacob on 19 januari 2017 15:32:16

London, 19 January (Argus) — Independent oil products stocks in the Amsterdam-Rotterdam-Antwerp (ARA) region rose to a four-month high this week, supported by a sharp increase in gasoil and jet fuel inventories.

Gasoil stocks increased to their highest level since early September. As low Rhine river water levels supported high freight rates for barges, customers in eastern France, Germany and Switzerland are turning to inland refineries, lowering import volumes from ARA. The contango on Ice gasoil, although weaker than last week, support the retention of product in storage tanks.

On the supply side, high import volumes from France, Latvia, Qatar, Russia and the US added to stocks.

Jet fuel stocks fell to their lowest level since March 2015. Product arrived from the UAE, but supply has been hit by maintenance at a hydrocracker at ExxonMobil’s 180,000 b/d Rotterdam refinery. Jet fuel tankers originally destined for northwest Europe continue to head to Singapore from the Mideast Gulf and Asia-Pacific.

Fuel oil stocks dropped as a very large crude carriers (VLCC) heading to Singapore started loading on Saturday, 14 January. Outflows and inflows of fuel oil stocks are dynamic with tankers unloading from Canada, Denmark, Poland, Russia and Norway and a fully workable arbitrage to Asia-Pacific.

Gasoline inventories edged higher. Spot transatlantic gasoline bookings for 13-19 January loading dates fell by 20pc from the previous week, but outflows to other destinations may have increased. Gasoline was exported to Brazil, Canada and western Africa. Contango in the swaps structure has been flattening over the past weeks but may have supported product retention.

Naphtha stocks climbed as steady imports from Algeria, France, the UK, Portugal and Russia combined with unworkable eastward arbitrage economics. A lower propane to naphtha premium is incentivising steam crackers with feedstock slate flexibility to lean towards naphtha, supporting demand from the European petrochemical industry.

Learn more on current and future market dynamics that impact the ARA tank storage sector in our revised ARA TT study.

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ARA oil product stocks fall marginally

Gepubliceerd Jacob on 4 augustus 2016 17:34:13

London, 4 August (Argus) — Independent oil product stocks in the Amsterdam-Rotterdam-Antwerp (ARA) region fell marginally during the past week, as a substantial decline in gasoline stocks of nearly 200,000t was offset by gains in gasoil, fuel oil and jet fuel inventories.

Gasoline stocks in the ARA region fell sharply because of an increase in shipments to west Africa. Exports from Europe to the US continued despite a rise in US production, which has offset a decline in stocks in the US. Gasoline inventories in the US fell to their lowest level since mid-June, according to latest EIA data. Total gasoline inventories declined by 3.3mn bl to just over 238mn bl in the week to 29 July.

But US gasoline demand fell by 44,000 b/d to 9.75mn b/d and finished motor gasoline production in the US Atlantic coast and the Gulf coast increased by 8-10pc, reducing demand for imported product.

As a result, US-bound bookings of European gasoline cargoes have fallen. Around 844,000t has been booked for 1-12 August loading, down from 1.01mn t in the same period of July.

Europe remains well-supplied with jet fuel and stocks of the product in the ARA region climbed by 9pc, from the prior week to hit a two-month high. Imports increased, with jet fuel imported from Bahrain and the UAE. Companies are reluctant to sell jet fuel because of a strong contango in the market.

Fuel oil stocks in the ARA region also rose, after falling to their lowest level since July 2015 a week earlier. Exports of fuel oil to Asia-Pacific slowed because of weak economics for shipping the product to the region, which keeps the trade route closed for most market participants. But Vitol has chartered the VLCC Front Signe to load 270,000t of fuel oil from Rotterdam to Singapore on 5 August. The tanker has been in the Rotterdam area since 1 August. The trading company has provisionally booked at least one more VLCC to load fuel oil from Rotterdam in mid-August.

Diesel stocks rose by around 1pc as imports from the US continued, while demand on the prompt market in northwest Europe was weak. Meanwhile, the STI Grace, which was booked by trading company Glencore and used to store diesel offshore Rotterdam, discharged into the port on 31 July.

Naphtha stocks fell by nearly 10pc during the week, but were nearly 20pc higher than in the same period of 2015. Demand from gasoline blenders has been soft in the past few weeks, while weak economics for shipping naphtha to Asia kept exports at a low level.

PJK International is also consulted for (medium and long term) supply and demand forecasting, tradeflow forecasting, oil tanker vessel tracking and its view on price trends on NWE oil markets.

 

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ARA independent oil product stocks slide

Gepubliceerd Jacob on 31 maart 2016 17:36:18

Independent oil product stocks in the ARA region fell in the past week because of drops in gasoil and fuel oil inventories. But the decline came only two weeks after oil product stocks in the ARA hub trading hit a record high.

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ARA independent oil product stocks fall

Gepubliceerd Jacob on 3 maart 2016 12:35:58

London, 3 March (Argus) — Independent oil product stocks in the Amsterdam-Rotterdam-Antwerp (ARA) region declined substantially in the past week after reaching record high levels as gasoline and fuel oil inventories combined for a drop of more than 200,000t.

Gasoline stocks declined despite low export levels to the US and west Africa. Companies took winter grade gasoline out of storage ahead of the switch to summer grade gasoline, which will take effect at the end of this month. Gasoline inventories in the US declined by more than expected for a second week in a row and the arbitrage from Europe has reopened. Gasoline stocks in the US declined by 1.468mn bl to 254.989mn bl, according to government agency the EIA.

Fuel oil stocks also showed a significant decline from the prior week as product was exported to Asia-Pacific. The very large crude carrier (VLCC) Olympic Legend, booked by Total, loaded fuel oil during the week. The VLCC Energy R, chartered by trading company Koch, is scheduled to start loading shortly.


Interested in consumption, production and tradeflow forecasts of the Northwest European liquid bulk cluster? Download the sample report.

Jet fuel stocks fell in the past week. With deal activity thin, companies took jet fuel out of storage. The Zaliv Amursky is floating offshore Fawley, southern UK, where it has been since 20 February with 90,000t of jet fuel. TheSti Madison is floating in the English Channel, unable to discharge its 90,000t cargo into Rotterdam.

Naphtha stocks declined marginally during the period. Demand from gasoline blenders and the petrochemical sector remained weak in northwest Europe. Naphtha arbitrage from Europe to Asia was closed.

Gasoil stocks were nearly unchanged from the prior week. The transatlantic diesel arbitrage has been shut and flows of the product from the Middle East and the Asia-Pacific region have been limited. But arbitrage from the US is now starting to open, paving the way for an increase in imports.

PJK International is also consulted for (medium and long term) supply and demand forecasting, tradeflow forecasting, oil tanker vessel tracking and its view on price trends on Northwest European oil markets.

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ARA product stocks rise

Gepubliceerd Jacob on 26 november 2015 16:43:56

London, 26 November (Argus) — Independent product stocks in the Amsterdam-Rotterdam-Antwerp (ARA) region fell in the past week, dragged down by a substantial decline in fuel oil inventories.

Total product stocks stood at 6.36mn t today, down by 171,000t from a week earlier, data from Dutch consultancy PJK International show.

Fuel oil stocks dropped by 121,000t to 1.217mn t during the period as the economics for shipping the product from northwest Europe to Singapore were strong, keeping arbitrage open. The previous week had seen fuel oil stocks reach a record high.

Jet fuel and naphtha stocks also fell, by 40,000t to 761,000t and by 33,000t to 173,000t, respectively. Jet fuel cargo bookings from the Middle East have declined in the past two months as Europe remained well supplied with the product. Demand for naphtha from petrochemical and gasoline blenders increased, while arbitrage to the Asia-Pacific region was open during the week.

Gasoline stocks declined marginally, by 4,000t to 625,000t during the period. Spot exports of gasoline to the US declined, but flows to west Africa held steady.

Gasoil stocks increased by 27,000t to 3.584mn t as import flows from the US and Russia were broadly stable.

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Analyse recente olieprijs verloop

Gepubliceerd Jacob on 13 november 2015 16:18:18

Sinds de vorige update zijn prijzen min of meer stabiel gebleven op de huidige niveaus, waarbij er zowel opwaartse- als neerwaartse druk in de markt te zien was. Periodes van stijgende prijzen worden gevolgd door dalingen en vice versa; de markt weet niet precies een richting aan te geven. Dit leidt er toe dat we nog steeds rond het huidige niveau van $50/bbl blijven schommelen. In de volgende analyse wordt getracht een opsomming te geven welke factoren hier debet aan zijn.

Allereerst wordt de markt gevoed door angst dat de economische vooruitzichten wereldwijd niet positief zijn. Hoewel zowel de Europese- als de Amerikaanse economieën voorzichtig herstel tonen, blijven met name opkomende markten achter bij de verwachtingen. Vooral China, de op-een-na-grootste olieconsument ter wereld, geeft steeds meer signalen af dat de groei getemperd wordt en dat de zo gewenste 7% jaarlijkse groei de komende jaren niet te realiseren zal zijn. De Chinese import en -export dalen, producentenprijzen dalen en dit pessimisme werkt door in andere markten; van de BRIC-landen, enkele jaren geleden nog gezien als dé groeimarkten, springt alleen India er economisch gezien positief uit. Dit vooruitzicht kan de vraag naar olie in de toekomst verminderen en heeft een neerwaarts effect op prijzen.

Is deze lage olieprijs dan ook te merken aan de pomp? In mindere mate, aangezien een vat olie in euro’s wel duurder is geworden. Dit hangt samen met een slechtere $/€ koers, die van 1.15 $/€ eind augustus naar 1.07 $/€ gezakt is. Verwachtingen dat de Amerikaanse Federal Reserve (Fed) een renteverhoging gaat invoeren zorgt voor een sterkere dollar en dus een zwakkere euro. Echter is de renteverhoging meerdere malen uitgesteld en de markt rekent er op dat dit in december of misschien pas begin komend jaar gaat gebeuren.

Daarnaast merken steeds meer oliebedrijven en olieproducerende landen de lage prijzen in hun portemonnee. Toekomstige risicovolle investeringen worden teruggeschroefd, banen geschrapt en volle olietankers varen een langere route in de hoop dat er in de toekomst hogere prijzen voor de producten betaald gaat worden. Landen als Saoedi-Arabië, Rusland, Venezuela en Noorwegen, allen in meer of mindere mate afhankelijk van olie-inkomsten, hebben hoge prijzen nodig om een budgettekort weg te werken. Enkele van deze landen hebben bij de OPEC-vergaderingen aangegeven dat de productie teruggeschroefd dient te worden, zodat de olieprijzen weer kunnen stijgen. Maar Saoedi-Arabië, de grootste producent, houdt vast aan de huidige niveaus en hoopt dat productie van non-OPEC landen als de VS eerder terug zullen lopen.

Maar ondanks lichte dalingen van productie bij non-OPEC landen is het maar de vraag of dit genoeg is om de huidige prijsniveaus opwaarts te doorbreken. De verminderde productie kan o.a. opgevangen worden door extra export uit Iran, die met het mogelijk opheffen van een Westers olie-embargo van plan is de olieproductie op te voeren. Hierdoor blijft er een overschot aan olie in de markt. Voorspellingen van olieprijzen voor de komende jaren lopen van $50 tot $80 per vat in 2020, waardoor de hoge prijzen van de laatste jaren verder weg zijn dan ooit.

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Review week 14/20: Brent crude was stable while WTI crude moved higher

Gepubliceerd Jacob on 26 mei 2014 14:19:12

Last week, Brent crude prices were relatively stable while WTI crude prices moved upwards. ICE gasoil and NYMEX heating oil were also constant while RBOB gasoline rose. Support came from a worsening security situation in Libya.

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