Kool-Aid and Golden Eggs: Simon Jacques “Egg-Crushing Contango Kill-Zone”

Kool Aid and Golden eggs1

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Barry Parker

By New York
Credit: Capital Link NY Shipping Industry Notes, Kool-Aid and Golden Eggs, Monday February 2, 2015.
One analyst one specializes in the interaction of ocean freight with commodity price arbitrages and spreads, Simon Jacques, author of the “Trade Shipping and Finance Wizard”, views the question differently, Mr. Jacques, based in New-Brunswick, Canada cajoles readers with the observation that:

“… The Freight Market is fully pricing the storage optionality shipping”.

In other words, and I am over-simplifying some very complicated risk/reward concepts contained in his latest posting, [referring to the “The Economics & Physical Aspects Behind The Contango.”], the shipowners who’ve done very well lately, are at the point of pricing charters right up to the edge of margins that make sense for oil traders.

But Shipowners are smart- they can do the same calculations as the traders, and, presumably, they will not want to kill the goose that delivered that Golden egg called “contango “…

“Based on market appropriate metrics EV/EBITDA for 2015, and the assumption of time charter equivalents averaging $60,000/day over the year, you could have a stock worth nearly $20/share.”

“Yes $60,000/day over a year is extremely aggressive, and beyond Simon Jacques egg-crushing contango kill-zone, but shipowners- through pools have been able to optimize in the spot markets and earn upwards of $80,000/day.”

Three must read pieces:
 The Economics & physical aspect behing the contango 2
Futures forwards, physicals and shipping in the Brent Market

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