What are your anticipated impacts on real economy and markets ? Also how would you best trade this ?
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Not an expert, only a student but my 2¢ IMO 2020 affects which fuels the shipping industry can use, and is aimed to reduce the impact on pollution by imposing penalties on shipping which uses sulphur rich fuels. This wiill affect US more than Saudi Aramco since US produces "lighter" grades which are affected more heavily from what I know. Some research done by my teammates in my student equity research group say that estimates for Brent prices could maybe shoot up to $80. OPEC+ is meeting in Vienna this month too, and may further decide to cut production again to boost prices again.
Goldman did a piece on this recently, they definitely have better insights that we do on this
It seems media coverage of the matter is pretty low and, in my opinion, this has potential impacts on various markets: - Crude oil markets - Refined pretroleum products - Equities - Trade Finance I believe jet fuel, gas may see short to medium term price hikes impacting travel industry, automotive sales and purchasing power in general. It may worsen US-China trade talks in case on non compliance by COSCO to provide unfair competitive advantage in freight prices. LNG may have a play in this as well.
Curious to hear about your opinions. Mine is we're in for a hectic 2020 year.
Get long low sulfur oil grades.
What do you think of a reverse cash and carry arbitrage? Crude is in backwardation because of the uncertainty risk but this should come back to contango soon enough once the uncertainty is settled.
what.
I mean arbitraging spot vs future prices by trading the EFP (exchange for physical). It seems looking at future contracts that crude is trading at a discount to spot which according to what I've seen, happened only a few times this past decade and is due to uncertainty in the market mainly when the market was concerned about a potential disruption. Seems that is what's happening here again?! I'm just wondering if this uncertainty may not be due to IMO 2020 and once this uncertainty unfolds then futures contracts may move back to premium over spot.
You can maybe make a penny trading EFPs. The reality is that most of the curve shape and spot market is due to the fact that now most barrels are not flowing through cushing. Basically all permian barrels are priced to go directly through Corpus or Houston and cushing continues to draw dramatically. Additionally, you are running into some interesting grade/blending issues at cushing as well. Your EFP idea is more to do with blenders making nymex spec barrels from whatever is showing up in cushing these days.
I do not expect cushing to be a contango market anytime soon. You will see permian trade at a discount to cushing before that happens. Production into cushing is barely flat, if not declining, so there will continue to be a call to cushing, spot bullishness, but this has little to do with IMO. If anything, and this goes to my point above, accessing the low sulfur heavier grades in bakken, canada, dj or scoop/stack and keep them clean (right now now a good way to do that) and deliver them on grade to the gulf cost for export, you can displace similar, higher sulfur barrels internationally.
My personal opinion is this whole transition just shifts the "dirtiness" to another part of the world in a different segment of the chain. From first hand conversations, I've learned that it's already commonplace that some ship operators just unload their sludge from the scrubbers to certain facilities in South America and Asia and those facilities quite simply burn it; awesome...
As it relates to "trading" it? Yeah, what George said.
It terms of environment it is a small step, but one in the good direction nonetheless (given appropriate enforcement by authorities and fairplay by ship owners). LNG might be a better solution, but a long term one, CMA-CGM is leading the pack. The problem with this is the lack of infrastructure for refueling and the investment gap in that area is still big. I do believe that is why Singapore in pro hydrogen when speaking on the future of automotive industry, it's simply because they want to maintain naval traffic in LNG. An electric future is no benefit to them whereas hydrogen is.
Senate Energy and Natural Resource Committee hearing on IMO 2020 going on right now:
https://www.energy.senate.gov/public/index.cfm/hearings-and-business-me…
long vertex energy
Your essentially betting on the spread HSFO vs LSFO. Seems their revenue growth would come from it.
It's pretty shocking how murky views on this are in the shipping world. Literally know one I have spoken to in shipping really seems to have a plan. I really haven't given this the attention it deserves, particularly to shoot down people trying to push on rate increases.
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