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What drives demand for tank storage?

Gepubliceerd Jacob on 31 mei 2018 9:04:01

PJK’s tank terminal commercial performance model

In this article we would like to explain PJK’s tank terminal commercial performance model and why this model offers essential insights into tank storage demand drivers.

Eager to know on a structural base what moves tank storage demand? Click here for a FREE trial of PJK’s Tank Terminal Week Report.

Intro PJK’s conceptual model

PJK’s tank terminal commercial performance model (see figure: 1) shows the relation between a terminal’s market environment and its commercial performance. The environment is divided into market fundamentals (which have a slow rate of change) and market dynamics (which have a fast rate of change). In our model the fundamentals drive dynamics. A terminal that has a good fit with market dynamics will find storage rates are being better supported. Besides market dynamics also market fundamentals influence storage rates.

Market fundamentals (see figure 2) are:
• The shape of the forward curve,
• The competitive structure and
• Logistical factors such as supply, demand, imbalances and trade flows.

 

Market dynamics (see figure 3) are:
• Inventory levels;
• Arbitrage and trade flows,
• Changes in product spec, and
• Variation in vessel sizes.

These variables have a direct impact on a terminal’s operations and on a terminal’s requirements. When a terminal is able to react faster to these dynamics in relation to its competition, it is more likely that it can create superior commercial performance.

PJK’s Tank Terminal Week Report has been based on these essential parametrics that drive tank storage demand. This report will improve your understanding of the world of oil trading and as a result offers you the chance to make intelligent decisions. Contact PJK International for more information. Or register on our website for the weekly newsletter.

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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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Weekly review: Constant prices after last week’s downwards slide

Gepubliceerd Jacob on 22 september 2014 14:45:53

Oil prices remained relatively stable last period after the slide in previous period. Supportive factors were balanced with bearish factors.

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Review week 14/31: Oil prices showed mixe results last week

Gepubliceerd Jacob on 11 augustus 2014 14:03:48

Early in the week, product – and crude prices broke out of their sideways pattern and showed a downward reaction. Well-balanced oil markets in key-consuming regions and weak global demand weighed on prices last week.

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Tank Storage Market Drivers: US Refineries

Gepubliceerd Jacob on 11 maart 2014 16:15:34

The tank terminal market for storing oil products boomed from 2008 till 2011 but has undergone some major changes in recent years. Current signs are that the hey-days are over and that the market is normalizing. However, looking at expected changes in global fundamentals the tank terminal market is up for a rough ride indeed!

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Groter scheepsaanbod zorgt voor druk op Rijn vrachttarieven

Gepubliceerd Jacob on 31 januari 2014 15:18:34

Olieprijzen bewogen zich afgelopen maandag neerwaarts. Onrust over de valuta koersval van opkomende landen bleven olie- en aandelenmarkten parten spelen.

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Gasoline Gearing Up: 20% rally with target $3.60

Gepubliceerd Jacob on 2 januari 2014 17:29:25

Gasoline futures advanced Friday for a third day in a row after an industry report showed a decline in U.S. stockpiles. The American Petroleum Institute (API) stated late Thursday 26th that supplies declined 2.49 million barrels last week.

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