Clean freight market report: AG & WCI MR rates have bottomed

The demand picture for MRs out of the AG and WCI has improved. USGC MR rates need to move lower to drive sustained demand and benefit from longer haul routes.

– USGC MR freight needs to go to 95WS to reopen the diesel arb into Rotterdam. At 95WS the diesel arbs into BA & Santos and the gasoline arbs into WCMEX & Guatemala will be materially positive as well. The USGC needs to experience some sustained demand across longer haul routes so that tonnage lists aren’t replenished almost immediately. Current tonnage in the 7-day ahead window is in line with the 90-day trailing avg of 15 vessels. Compared to last week there are 5% more ballasters pointing at the USGC.

– NWE MR rates bounced off a fixture low of ~115WS early last week, which has become a trend this year. TC2 market looks rangebound between roughly 115 and 145 WS. At the high end of the range freight rates shut most arbs while generally around 115 WS the mogas arb into USAC reopens. Spot is currently at 137, which is too high from an incremental arb demand point of view. Refinery margins though are still positive up into the 155WS range. 110WS would reopen the spot gasoline arb into NYC. MR tonnage is now long again at 8 vessels above the trailing 90-day average. Spot TC2 rates feel supported currently, but should drift lower the deeper into the week we go.

– AG LR1 market demand wise is relatively neutral now. The factor dragging demand down is that the Med is pricing naphtha better than the AG into the FE for July delivery. Naphtha Singapore arb is still out pricing the Med though. Jet arbs into Europe continue to be open as jet demand out of Europe remains strong. The Gasoline arb into Indonesia is open as well. The currently open LR1 arbs should be enough to keep LR1 tonnage around the trailing 90-day average and therefore TC5 should trend sideways. Current 7-day ahead LR1 tonnage is just below the trailing avg of 7 vessels.

– AG & WCI MR markets have bottomed. 180WS looks to be the lower band pain threshold for TC17 as the arb margin picture always improves dramatically once sub 200WS. The AG to Durban gasoline arb is the widest open I have seen it this year at +$7.25/mt. In general the product arbs into Africa are pricing better now and WCI is pricing competitively on diesel vs the AG so there is definitely product available to move. MR jet arb econs are still shut into Europe though so that is one drag on demand. Tonnage supply is trending below the 90-day trailing average now. Ballaster counts pointing to the AG are up though at 15% compared to last month.

– SEA MR rates should come under some pressure balance of this week. Gasoline arbs into WCLATAM are now shut and the diesel arbs remain shut. Tonnage has also started to stedaily build over the last week and the count now stands at 5 above the trailing 90-day average.

– FE MR market is quite similar in story to that of SEA now. Arbs into WCLATAM have shut and tonnage has crept higher. Open vessel supply in the 7-day ahead window is 2 ships long compared to the 90-day trailing average.

(USGC MR freight dashboard)

Michael Ryan, our Freight Commodity Owner at Sparta, brings over a decade of experience with Trafigura in the energy sector managing risk across products and regions before becoming Head of Risk for subsidiary Puma Energy. Michael then joined the Trafigura commercial team trading freight while successfully growing the physical fleet through strategic dealmaking.

Sparta is a live, market intelligence and forecasting platform that enables oil traders, refiners, banks, hedge funds and wholesalers to have access to real-time and global actionable insights to capture market opportunities before others.

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