Crazy, rich tightening in Asia

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    The current low crude oil price environment, in conjunction with the response from Asia’s refineries, has bolstered refined product inventories. In contrast, strong buying interest from India, combined with tighter Chinese export quotas has seen a short-term jump in demand in South East Asia. With the above market conditions reflected in the middle distillates forward curve, the recent sustained backwardation has become more pronounced.

    Many traders respond by moving their volumes out of landed storage tanks. Traders are considering alternative storage options. Traders are using oil tankers due to their relatively low cost and intrinsic flexibility.

    With many traders contemplating reducing the storage lease volumes/tenors, or not renewing their storage contracts, tank owners and operators are likely to continue to face downside pressure on storage rentals rates.

    With the negative carry in the forward curve, tanking companies, especially those who have recently completed new storage projects in the Singapore-Malaysian Straits, will need to carefully manage their funding arrangements, to avoid running out of cash in a funding environment that is still cautious of oil-linked industries.

    Oliver Hsieh Source:

    – Oliver Hsieh, Director, Commodity & Energy Risk Management, KPMG in Singapore

    Private equity in exploration and production

    The first half of 2017 saw a boom in exploration and production (E&P) deal activity. M&A spending reached levels not seen in recent years. There is a general view in the market place that assets are being picked up by the right buyers. Challenging assets are moving to specialist operators in the North Sea. Oil sands are moving to companies with specific technical expertise in the US. Private Equity (PE) plays an important role in re-igniting this deal activity. It provides the much needed competitive tension, and innovative deal structures. It helped to close the buyer and seller expectation gap, and deliver the finance needed to ensure deals are done.

    “Within the North Sea specifically, we have seen the market has started to understand the attraction of E&P to Private Equity. Therefore, we have recently seen PE succeed in a number of deals. Most notable, Shell’s $3.8 billion sale of their North Sea package of assets.”

    Natalie Wansbury, Director, OIle & Gas Practice, KPMG in the UK
    Natalie Wansbury Source:

    “PE’s approach into E&P appears to be less about the high leverage, cost cutting and quick exit model often used in other industries. It is more of a longer term bolt-on model to build balanced, complimentary portfolios of assets and strategic plays, with cash extracted through exit rather than in the `ownership’ years. During 2016, we saw over $60 billion of equity capital raised for natural resource deals across 74 funds, and this alongside the longer term build and buy strategy suggests that PE will be around, at least in natural resources, for many years to come.”

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