Clean freight market report: TC2 strength is over done

Commentary summary:

NWE MR freight market lacks pricing power. AG and WCI MR markets poised for stronger rates. 

• USGC MR market has stabilized. Sparta is signaling neutral with the prompt loading diesel arb into ARA only shut by $3.75/mt and other arbs open with TC14 at 125 WS and 7-day ahead tonnage now four vessels below the 90-day trailing average.
• NWE MR rates jumped rapidly from 95 to 125 WS. At 125 WS the demand picture is very weak. 7-day ahead tonnage supply has already moved back up to in line with the trailing 90-day average of 17 vessels. The gasoline arb into NYC is slammed shut.
• AG LR1 spot, Aug and Sep jet arbs are wide open into Europe. Naphtha arbs into the FE are shut. 7-day ahead tonnage supply continues to bounce around the average count of 10 vessels. Rates to churn sideways.
• AG MR rate prediction is signaling a 50 WS point move higher. On July 11^th it was signaling a 20 WS point move higher. A material step change in a short period. This is driven by open jet arbs into Europe, open diesel arbs into Europe and normal arb margins into Africa. Tonnage remains tight.
• WCI is signaling neutral freight rates over the next week. The diesel arbs loading out of WCI are indeed shut, but only marginally for Aug loaders. The WCI to La Plata spot diesel arb is open, which is rare. WCI should start to help absorb regional AG tonnage and push rates higher.
• SEA and FE MR markets are trading in lockstep with similar outlooks. Price action is muted and sideways. The Sparta rate prediction for both regions is neutral. Regional tonnage supply in the 7-day ahead window is bouncing around the trailing avg. More sideways churn to come.

Philip Jones-Lux is Senior Analyst for Sparta. Having worked with organisations such as JBC Energy and RP Global, Philip is a seasoned energy market analyst with expertise across the oil barrel and power markets

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