Financing floating oil storage in hopes of a price recovery

Bloomberg/Fuel Fix:
The waters between Singapore and Malaysia used to heave with wooden ships carrying exotic spices. Now the Straits of Malacca are filled with vessels carrying a very different sort of commodity.

Oil traders awaiting a recovery in crude are turning to floating storage after benchmark Brent prices more than halved over a span of two years, according to Morgan Stanley analysts led by Adam Longson.

Unlike previous oil storage trades, however, this one is unusual in that current oil prices and storage costs ought to make it unprofitable. Morgan Stanley estimates that the one-month Brent storage arbitrage currently produces a loss of $0.48 per barrel, while its six-month equivalent loses $6.11 per barrel.

That suggests “no incentive to store oil on ships,” the analysts write. “Yet, banks are seeing a sharp uptick in interest to finance storage charters. This storage is not happening for profit. Rather, the market is looking for places to store oil. To profit, traders need to hope for oil prices to rise enough to pay for the new debt incurred for this storage.”
...
Traders must be calculating that selling the oil in the current market would be more costly than the financing of the storage fees.  They are in effect adding more risk to their portfolio in hopes of an improved market in the coming months.  Some could argue that this arrangement is just another sign of market weakness.

Comments

Post a Comment

Popular posts from this blog

Should Republicans go ahead and add Supreme Court Justices to head off Democrats

Washington Post: Some Democrats eye adding more justices to the Supreme Court to change its ideological bent The once-remote idea has gained the attention of liberals angered by the GOP push to remake the federal courts. Probably the easy way to defeat this court-packing scheme is for Trump to propose doing the same thing now.  It would lead to Democrat denunciations and claims that it would be wrong, thereby blowing up any attempt by them in the unfortunate event of Democrats winning a presidential election.
Read more

29 % of companies say they are unlikely to keep insurance after Obamacare

Conn Carroll: A new survey of 368 midsize to large companies found that 29% of them are considering terminating their active employee health care plans when Obamacare is full implemented in 2014. Only 71% of employers surveyed said they did not expect to drop their health coverage, while 20% said they did not know and 9% said they were planning to exit. The latest survey, conducted by Towers Watson, echoes an ealier survey by McKinsey & Co. finding that 30% of private-sector employers were planning to drop their employee health insurance coverage by 2014. When the Congressional Budget Office crunched Obamacare's spending numbers, they estimated that only 7% of employees currently covered by employer-sponsored plans would lose their plans. ... This means the cost of the health care fiasco will be hundreds of billions more than estimated by the CBO and Congressional Democrat. It is also clear that Obama's pledge that you could keep your health care plan if you wanted t
Read more