Task 1
Question 1: Storage Capacity
For Q1 the first step was to convert the cargo quantity (80,000 MT) from MT which measure the weight of the parcel and change it to cubic meters (m3) to instead measure the volume. This was done by first converting to kg using the conversion rate (1 MT = 1000 kg), further converting the cargo from kg to L using the density formula provided (Density = 0.845 kg/litre at 15 Celsius). The final conversion was done using the conversion rate of (1 L = .001 m3) which gave the quantity of 94674.55621 m3 shown in Figure 1.
Convert MT to kg 80000 MT = 80000000 kg
Convert kg to L 80000000 kg = 94674556.21 L
Convert L to m3 94674556.21 L = 94674.55621 m3
Figure 1: Cargo Conversions
The excess capacity is then calculated by subtracting the cargo quantity in m3 from the gas oil storage procured through Tankstor in Rotterdam of 100,000 m3 resulting in an excess quantity of approximately 5,352 m3. This was made using the assumption that the entire amount of the storage is purchased. All conversion rates not given were found using google.
Question 2: Profit/Loss (Viboil Vs. Tankstor)
In Q2 the first step was to calculate the up-front costs incurred by purchasing the cargo, this value will be the same in each of the options. It was calculated using the given cargo quantity (80,000 MT) and the physical price of $592/MT. This resulted in initial costs of $ 47,360,000.00, to find the total profit of each scenarios the additional costs were subtracted from the revenues and then added to the initial costs. The resulting figure was the profit for each scenario as shown in the figures below.
a).
Figure 2: Viboil Option
b).
Figure 3: Tankstor (30-day)
c).
Figure 4: Tankstor (60-day)
The best scenario of the three is the Tankstor 30-day option seen in Figure 3, this option provides the most potential profit at $300,000.00. These values were calculated with the assumption that the storage paid for was the full 100,000 m3, this was assumed to be the case since there was no mention of the storage size procured changing due to cargo size. The agreed amount would be paid in full and not based on the cargo quantity calculated.
Question 3: Contango
a).
In Q3 using the same previous calculations from Q2 for the Tankstor 30-day option and accounting for the extra 30-days of storage including the up-front fee in and the fee upon exercise of the option. After calculating the total fees and up-front costs the minimum profit acceptable of $300,000.00 calculated previously was summed with both to find the total value of the deal.
Figure 5: Tankstor 30-day w/ Option
By dividing the total value of the deal by the cargo quantity of 80,000 MT the minimum acceptable M2/M3 contango price of $609.50 seen in Figure 5 was the result. This minimum contango will allow ABC to maintain their profit with this new option anything above this will increase the profit thus making it a better deal.
b).
initial costs added by the option of $100,000 to secure the storage if the option minimizes the profit and is not reclaimable if the option is not exercised. This risk of “locked profits” is not worthy, the contango has to rise over $2.50 more than it is projected too just for the company to break even.
Task 2
Question 1: Parcel of Gasoline in Rotterdam
ABC should buy the parcel of Gasoline in Rotterdam, to maximise profit they should charter the Mogas Mover heading to the destination port of NYH. As seen in Figure 6 the total profit for in this scenario was $248,172. This was the best option for Q1, it was calculated using the following formula:
Figure 6: Mogas Mover to NYH
Hedging Actions, Feasibility and Potential Profit
Mogas Mover to Belfast:
Petrol Pusher to Belfast: Not feasible due to the draft height being higher than the maximum allowed. Also, Petrol Pusher has only East coast options meaning it cannot go to the UK Belfast Port. Profitability = $45,000.
Mogas Mover to NYH:
Petrol Pusher to NYH:
Question 2: Top-up Material
In Q2 this question the added material of up to 10kt had an effect on the decision in Q1. This changed the most profitable option to Petrol Pusher to NYH instead the Mogas Mover on the same route. This is because of the DWT maximum on the on Mogas Mover could only take 2000 MT of the extra Top-up Material while Petrol Pusher could take the entire amount and sell it at CME RBOB in NYH M2.
Figure 7: Petrol Pusher to NYH w/ Top-up
As seen in Figure 7, the there was an increase in revenue of approximately 8 million from the sale of the original parcel with the top-up.
Question 3: Gasoline Shortage in Gulf Coast (Minimum Price)
In Q3 the main changes to the equation used were the daily cost with an additional 6 days sailing time, the discharge costs grew when compared to the costs in NYH. The top up costs remained the same alongside the revenues. To maintain the minimum profit calculated in Q2 the total value of the new deal was calculated and divided by the total gallon amount, this is demonstrated in the equation below:
Figure 8: Petrol Pusher w/ top-up
Task 3
Question 1: Calculate the relevant WTI crack spreads
a).
For WTI crack spread, the formula that should be applied:
For LCR is: Gasoline Yield x Gasoline Sale + Gasoil Yield x Gasoil Sale – Total Cost/bbl
For ER is: Gasoline Yield x Gasoline Sale + Gasoil Yield x Gasoil Sale – Total Cost/bb
b).
Future Swaps that should apply in each month are:
Refineries Fuel Type Get/Sell M1 M2 M3
Lake Charles Refinery (LCR) Crude Procurement CME WTI Futures – –
Gasoline Sale CME RBOB Gasoline Future – –
Gasoil Sale CME NYH Gasoline Futures – –
Europoort Refinery (ER) Crude Procurement CME WTI Futures
Gasoline Sale Platts Eurobob Swap
Gasoil Sale ICE Gasoil 10ppm Futures
Figure 9: Applicable Future Swaps
c).
The processing cost is different for both LCR and ER at $2/bbl and $1.5/bbl respectively, there for 2million bbl of WTI cruise oil it would be
Refinery Processing fee /bbl Quantity (bbl) Total Processing Cost
Lake Charles Refinery US$2.00 2,000,000 US$4,000,000
Europoort Refinery US$1.50 2,000,000 US$3,000,000
Figure 10: Total Processing Costs
d).
The fright cost does not apply to Lake Charles Refinery due to ex-pipe, but only applies for Louisiana Offshore Oil Port (LOOP) to Europoort Refinery in Rotterdam; the sailing time from LOOP to ER is 22 days, with the Vessel’s (Crude Runner) daily cost of $85,000. Giving the total freight cost as US $1,870,000.
e).
Other costs that have to be taken into account are the discharging cost at Rotterdam Port of $1.6 million ABC should buy the WTI Crude Oil from LOOP and process it at Europoort Refinery as it creates more profit than processing at Lake Charles Refinery.
WTI Crude Oil Profit Profit /bbl
Lake Charles Refinery US$4,689,120 US$2.34456
Europoort Refinery US$14,469,976 US$7.23499
Figure 11: WTI Crude Oil Profits & Profits per bbl
Question 2: Financing Crude Cargo
Instead of WTI by Huston Oil Trading (HOT), if we procure Louisiana Light Sweet (LLS) Crude Oil from American Oil Company on the same terms as HOT, our profits for refining it at each refinery are as below.
Louisiana Light Sweet Crude Oil Profit Profit /bbl
Lake Charles Refinery US$3,776,740 US$1.88837
Europoort Refinery US$14,133,456 US$7.23499
Figure 12: LLS Crude Oil Profits & Profits per bbl
Which shows that refining at ER gives better profit than LCR. Moreover, if ABC could only finance one crude project it would be WTI refined at Europoort Refinery as it would generate higher profit of US $14,469,976, as compared to US $14,133,456 from LLS refined at Europoort Refinery which.
Question 3: Financing Cost Change
If ABC has to take financing for its operations from XYZ Bank at 12% p.a. interest, which would reduce the profit margin for both WTI and LLS, as shown in the table below.
Oil Refinery Profit Profit /bbl
WTI Lake Charles Refinery US$3,421,120 US$1.71056
Europoort Refinery US$11,914,576 US$5.95729
LLS Lake Charles Refinery US$2,508,740 US$1.25437
Europoort Refinery US$11,578,056 US$5.78902
Figure 13: Comparison of Profits w/ Financing Cost Change
Despite the lower profits for both WTI and LLS at both LCR and ER, the profit for WTI at ER stays the highest US $11,914,576 compared to US $11,578,056 for LLS at ER. Therefore, even after applying the finance cost for both, the decision would stay the same to procure WTI refined at EU over LLS.
Task 4
Question 1:
Question 2:
a).
b).
c).
d).
Question 3: