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Re: Tankers
MasterPlan
06-12-2008, 1:21 AM | Post #2527621
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Okay, I think I understand the model now. My first thought
was: what is the advantage of term contracts? Since they're
set up ahead of time, the oil is reserved for you. And yes,
that's good, that reduces your risk as a buyer. But if the price rises
along with spot, you don't get a discount for making the deal.
Granted the price falls along with spot too but the whole thing sounds
like a casino.
But I guess I'm used to a different model. In dry bulk shipping,
shippers often secure a time contract (time charter) for transport
services, rather than fixing on spot. And that contract is at a
fixed price. But the goal there is not only to make sure
transport is available when they need it, but also to to reduce the
risk of a freight rate increase. The shipowners also like this
arrangement, since they've locked in a secure revenue stream for the
time of the charter.
In the case of oil, it's completely different. The buyer is not
protected against a price increase, and the seller is not protected
against a price decrease. The goal of the buyer (refiner) is solely to
make sure oil is available when they need it. And the goal of the
seller is solely to schedule production so they can secure a big
sale. At least that's how I understand it...
Different strokes for different folks, I guess. It sounds like
there have been problems in the past with fixed-price contracts.
And thanks for the info on the pipelines. It explains why I see
so many tankers on a regular basis. And it rules out cross-border
snafus as a reason for the occasional queues.
Topics
casino
charter
pipeline
Risk
shipping
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