Dirty freight market report: Back to fundamentals as the dust settles

TD25 looks neutral heading into July. TD3c spot looks too expensive.

The Sparta RBI (relative basket index) compares the route in question against all material relevant global competing routes delivering crude grades into the same destination. It provides an under/overvalued signal and is an inverse leading indicator for freight demand and FFA price action.

It has been a wild couple of weeks. Now that the ceasefire between Israel and Iran looks to be holding, we can look to fundamentals again. The DPP price moves lower this week are starting to better reflect this new normal and the RBIs have repriced accordingly. There is also a general sense in the market that charterers have been holding back some on fixing due to the geopolitical volatility.

• TD25 RBI is bang on neutral now. Afra tonnage supply in the 10-day ahead window is in line with the trailing 90-day average of 9 vessels. Given that both the RBI and tonnage supply are neutral, the 20 WS spread to July looks too wide. Spot / July spread likely starts to narrow to the mid-point in the mid 140s WS.
• TD20 is now undervalued basis the RBI after the move in freight rates. Prompt suezmax tonnage supply in the 10-day ahead window is relatively tight and sits at 1 vessel below the 90-day trailing average. With TD20 & WAF crude grades pricing competitively and a reasonable tonnage list July TD20 should roll higher towards spot around 90 WS.
• TD3c rates have been incredibly volatile. Even after the aggressive reprice lower in TD3 this week, the RBI is still indicating that TD3 is materially overvalued vs the competition. AG VLCC tonnage remains long at 7 vessels over the 90-day trailing average of 36 open Vs in the 14-day ahead window. Spot looks too expensive and the spread to July looks too steep. Spot rates should weaken further by at least $1.95/mt to get the RBI back to neutral.
• TD22 RBI is now neutral after freight rates moved lower. VLCC tonnage in the USGC in the 14-day ahead window is tight at 2 vessels below the trailing 90-day average. Market looks supported here and July should price higher narrowing the spread to spot.

(TD25 RBI)  

(TD20 RBI)

(TD3c RBI)

(TD22 RBI)

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.

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