Morgan Stanley to secure supertanker to store crude oil

Times of London ^ | 01/16/09 | Leo Lewis

[TigerLikesRooster]

January 16, 2009

Morgan Stanley to secure supertanker to store crude oil

Leo Lewis, Asia Business Correspondent

Shipping brokers in Tokyo say that Morgan Stanley has joined a growing international scramble to secure an oil supertanker and use it to store millions of barrels of crude in what commodity dealers believe may be the “trade of the year”.

The rush to snap-up supertankers and profit from the huge “contango” spreads between the falling crude spot price and rising futures price comes amid dire warnings by analysts over the future of the wider shipping industry.

Massive overcapacity and slumping global trade are expected to trigger a second collapse in cargo rates, which already plunged nearly 94 per cent last year. Exports from China, Taiwan, Korea and Japan are falling fast and expected to drop further at a pace not seen since the early 1980s.

Sources throughout the Asian shipping sector say that despite a recent rally in container and dry bulk rates, 2009 could see dozens of firms going bust. A spokesman for Japan’s largest shipping line, Nippon Yusen, predicted prolonged difficulties for cargo rates as the global economy falters.

[SAJ]

Hack, do you happen to have a chart of the gas crack over, say, the past 20 years?

[thackney]

Sorry, I couldn’t find one.

I thought I saw some of that before over at OPEC.org but I couldn’t find what I remembered.

[mysterio]

We saved the financial sector, and they pay us back by trying to drive the price of gas back up.

[SAJ]

Not a big deal. Thanks for looking!

[Golddigger3]

Just what we need. Morgan Stanley wants to do their part to drive up oil prices again. Didn’t they get some bailout money? We would have been better off, if they had just gone under.

They have not taken any direct government money, and any indirect money they may have gotten has been small. They have the best balance sheet among the major banks.

[PAR35]

It's nothing -- NOTHING -- to do with ''speculation''

Joe Spec buys front-month crude, intending to store it (somewhere) and sell it back next month. Likely as not, he's already sold next-month futures...

When you make up your mind which position you want to take, perhaps we can have a reasonable discussion. Until then, it appears you are having some fun debating yourself.

[javachip]

they must think oil will go up significantly.

Nope. The spread between the cash price of oil and the futures is big enough that this makes sense. It's low risk money if you can round up enough cash to do it and know what you're doing (I don't qualify on either count).

Buy oil for Feb delivery at $35-36 a barrel, simultaneously sell oil for Mar delivery at a little over $42 a barrel. But you need to store it somewhere for the month. At current rates it costs a little over $2 million a month to charter a VLCC. Those hold about 2 million barrels of oil.

Buy 2 million barrels, sell it for $6 a barrel more than you paid. Pay another $2 million to charter the tanker, throw in whatever other expenses are involved and the trader makes a very nice profit on the deal.

[javachip]

Morgan Stanley was in the first group of banks to get TARP money. They sold $10 billion of preferred shares to the Treasury.

[grey_whiskers]

I have seen gas prices jump over 12 cents/gallon overnight -- or fall by the same.

This cannot be due "directly" to secular changes in demand, or even supply vs. demand, as the time scale is too short. I think it is this kind of very-short-term volatility which leads people to blame "speculators". Somewhat analogous to day traders in stocks, who seek to foment price movement -- in any direction, they don't care which -- and then to climb aboard the trend to make money off the change in price itself, rather than in ordinary merchandising of the product.

Secondly, looking at your first chart (1 month average retail price chart) -- why on earth is gas at the high end of the price range for the period, when the crude oil price is about 25-30% above the lowest price value for the period, and has in fact been in a falling trend for a couple of weeks? Are yoyu arguing that the price of gasoline is correlated with the price of crude oil, but with some "average" lag time?

More details, please. What you have presented so far, together with "hand waving" explanations, is not yet enough to make your case.

Cheers!

[grey_whiskers]

Re: My post 29 this thread.

Thanks for the reply, I'll get to the terms tomorrow...

Cheers!

[thackney]

Secondly, looking at your first chart (1 month average retail price chart) -- why on earth is gas at the high end of the price range for the period, when the crude oil price is about 25-30% above the lowest price value for the period, and has in fact been in a falling trend for a couple of weeks? Are yoyu arguing that the price of gasoline is correlated with the price of crude oil, but with some "average" lag time?

In this case, even a month doesn't present the whole picture. Late last year world wide demand for distillates, diesel in particular climbed in respect to the falling gasoline demand. Europe and China are making pushes to turn their passenger fleet into more diesel due to the fuel economy.

Look at the spot prices that resulted, combined with a falling oil price. In Oct, Nov and December, Wholesale gasoline was selling for less than crude oil.

Cushing, OK WTI Monthly Spot Price
http://tonto.eia.doe.gov/dnav/pet/hist/rwtcm.htm

U.S. Gulf Coast Conventional Gasoline Regular Monthly Spot Price
http://tonto.eia.doe.gov/dnav/pet/hist/rruusgm.htm

Now I'm not claiming that the refineries were operating for a loss, they were making up the difference on distillates, diesel, heating fuel and Jet fuel.

Gulf Coast No 2 Diesel Low Sulfur Monthly Spot Price
http://tonto.eia.doe.gov/dnav/pet/hist/rdlusgm.htm

Gulf Coast No. 2 Heating Oil Monthly Spot Price
http://tonto.eia.doe.gov/dnav/pet/hist/rhousgm.htm

Gulf Coast Kerosene-Type Jet Fuel Spot Price
http://tonto.eia.doe.gov/dnav/pet/hist/rjetusgm.htm

Most Refineries in the US go through additional processing to raise the ratio of gasoline versus distillates. This cost money and energy. Some of us have been saying for quite a while that this situation could not last.

http://www.freerepublic.com/focus/news/2151383/posts?page=21#21
December 19, 2008

http://www.freerepublic.com/focus/news/2142706/posts?page=17#17
December 04, 2008

http://www.freerepublic.com/focus/news/2118595/posts?page=15#15
October 29, 2008

That it is finally correcting shouldn't be a surprise. What is surprising to me is how long the situation lasted in the first place.

[grey_whiskers]

In this case, even a month doesn't present the whole picture.

Yes, but it was *your* chart.

There are two possibilities:

1) you have a wealth of information, which is a pain to research, and must be laid out one-step-at-a-time to avoid confusing the reader, and in which each step builds on the prior step.

2) You keep moving the goalposts in an attempt to blow smoke.

I'm still trying to decide between the two -- the reason I include the second is that there are *known* instances of hedge funds and the like admitting to issuing press releases to drive price changes; and the fact that each time you post more information, the "underlying reason" for the price movements seems to change from what it was in the prior posts.

But I'm not enough of an expert on the trading markets to know, and I'm too lazy at this moment to research it in detail.

So I thank you for posting courteously in reply, and bookmark this response of yours for later.

Cheers!

[thackney]

Yes, but it was *your* chart.

But I didn't post just one chart. I posted 4 in lengthening time scales to show the trends.

You picked only a part of the the information I presented. I tried to follow up and provide to you a more complete picture of why this is a recovery from a previous unsustainable position.

The petroleum financial market is incredibly complex, influenced by many different areas and most are somehow related. I've never found any source that can reliably, continually predict where the market is going to go. Some are right more often than others.

I like the EIA (of the Department of Energy) web site for historical data. The gasbuddy web site is less exact but offers up and easy comparison of trends for gasoline and oil on the same chart.

I'm not enough of an expert on the trading markets

Neither am I and certainly don't claim to be. I have worked in the oil/gas industry for a couple of decades both production and refining.

I'm not a trader although at one time I tried just a little of it in Natural Gas back when I thought I knew more than I actually did. Once I realized I was being lucky, not smart, I quit it.

[SAJ]

The situation involves **delivery**, not speculation. A little too thick to pick up on that, are we? Perhaps I shouldn't have confused you by using ''Joe Spec'', but rather ''Joe Trader''.

There is by definition no speculation involved when a purchase and a sale have already been executed, as in this type of trade now present in crude.

[grey_whiskers]

Once I realized I was being lucky, not smart, I quit it.

I respect this, it is the mark of wisdom.

I will continue to mull over your other points, but I have to help prepare for having guests over -- I'm pushing it even to be FReeping right now.

Cheers!

[PAR35]

There is by definition no speculation involved when a purchase and a sale have already been executed

Perhaps on your planet. I live on earth.

[thackney]

Cheers back at ya.

There are plenty here who know the market side better than I do. The engineering and construction of facilities in the oil/gas industry has been my career choice.

Through FreeRepublic and other searching I've learned a good bit more about the market side of it and it holds my interest.

I like to see us at FR to be the best informed, even when we don't agree. I see too much public policy and corresponding taxpayer dollars chasing bad ideas. I hope we learn from each other here to push our candidates and elected officials to make good decisions.

At least that's the excuse I give myself for all the time I spend here...

[thackney]

How would I be speculating if I both bought and sold a future delivery of 100,000 barrels within the same few minutes?

I'm not betting on a price rise in the future. I'm agreeing to store the oil for a few months for the difference in price. The chance some are taking today is doing so without first securing storage. Storage is getting tight right now.

Some might consider the consumer buying oil today for delivery in June a Speculator. But I see that refiner as just controlling cost, rather than gambling that prices will be lower later. He pays a premium for delivery later without having the ability to store it today.

The speculator is one not taking delivery or handling the product, only making paper trades. At least in my opinion...

[PAR35]

You aren't even speaking logically at this point.

How would I be speculating if I both bought and sold a future delivery of 100,000 barrels within the same few minutes?
I'm not betting on a price rise in the future. I'm agreeing to store the oil for a few months

If you buy and sell the same amount in a few minutes, storage isn't an issue. You are just betting (speculating) on some very short term swings. You are the definition of a speculator.

Now, if SWA buys 10,000 gallons of Jet A for May delivery, they are hedging against price swings for known future needs - they aren't speculating, they are going to take that amount of fuel no matter what the market does over the next few months. They are just managing costs.

If it makes you feel better about yourself to wear a different label than speculator, feel free to do so. It doesn't change what you are doing, however, and don't expect others to play along.

[thackney]

If you buy and sell the same amount in a few minutes, storage isn't an issue.

I buy oil for immediate delivery. I sell a July delivery. I have to store the oil until July. Futures Market are used to buy and sell for a future delivery. That is the entire purpose of the futures market. When they quote the price of oil on the news, it isn't the spot market (immediate delivery) it is the next month delivery.

Click on the following link. You can buy and sell oil contracts going out about 8 years.

http://online.wsj.com/mdc/public/page/2_3028.html?category=Energy&subcategory=Petroleum&contract=Crude%252520Light%252520Oil%252520Comp.%252520-%252520nymex&catandsubcat=Energy%257CPetroleum&contractset=Crude%252520Light%252520Oil%252520Comp.%252520-%252520nymex

Now, if SWA buys 10,000 gallons of Jet A for May delivery

There is not futures market for Jet Fuel. SWA has been hedging crude oil, heating oil and gasoline. Being all petroleum they move in similar fashion. SWA never takes delivery of the products they trade on the NYMEX because they don't use them. They trade the paper and the reflecting changes in price closely match the prices they have to pay for Jet Fuel.

If it makes you feel better about yourself to wear a different label than speculator

I'm not a trader. I work in the oil/gas industry designing facilities for upstream and downstream projects.

SWA is a speculator, but they use it balance out (hedge) the swings in the fuel prices.