DPP market report: Sparta RBI launch (Relative Basket Index)

WAF Suezmaxes are overvalued vs their global competition for crude delivery into NWE.

Commentary summary:

• TD20 is currently overvalued vs the relevant competition and has been since the end of Feb. The degree of overvaluation though has been decreasing since the second week of March.
• WAF open suezmax supply is currently 3 ships under the 90-day trailing average vessel count in the prompt 10-day ahead window. Available tonnage in the 10-day ahead window has been consistently below the 90-day avg since the middle of February.
• Spot TD20 rates have steadily rallied since the beginning of March. The fwd curve is backwardated with the Apr/May spread at 15 WS points. If demand decreases due to TD20 remaining overvalued then expect spot prices to narrow towards the May value of 82 WS.

The Sparta RBI compares the route in question, in this case TD20, against all material relevant global competing routes delivering crude grades into the same destination. TD20 is currently overvalued vs the basket of competition. Three examples of competition in the basket include, Liza out of LatAm, Basrah out of the AG and Mars out of the USGC. There are a total of 9 competitors in the basket vs TD20 Bonny.

The Sparta RBI provides an under/overvalued signal. If materially under or overvalued vs competition there historically tends to be mean reversion. This signal can be used to better trade and time FFA positions and to maximize earnings on vessel fixtures as it is an indicator for fwd looking demand.

In the first chart below, TD20 $/MT M01 price in green, correlates to many of the under/overvalued periods as M01 price action reacts to the physical market. The second chart shows the current and historical under/overvalued RBI.

Lastly, the blue chart shows current and historical 10-day ahead prompt open WAF suezmax supply with trailing 90-day avg supply and spot TD20 prices overlayed. Prompt tonnage counts vs the trailing average is a significant inverse correlated indicator for FFA prices. The graph illustrates this well.

To summarize, TD20 is still  overvalued vs the competition, although prompt tonnage supply is below the trailing average. If WAF suezmax econs remain overvalued and tonnage builds then spot prices likely move lower to narrow the spread to May. The Apr/May spread is currently 15 WS points backward.

(TD20 RBI analysis)

(Historical WAF suezmax supply & spot TD20 spot price)

Sneak peek at the Sparta RBI TD25 USGC aframax market analysis:

• USGC afras are overvalued vs the competition after the recent rally in TD25 rates. M01 TD25 rates already reflect this with steep backwardation to spot.
• Afra tonnage in the 5-day ahead window is still tight though and tied for the lowest count in the last 12 months.
• If fixing slows though due to Trump tariffs (possible increased fwd fixing over the last two weeks due to liberation day uncertainty) combined with an already overvalued RBI then spot rates should narrow towards May values. The Apr/May TD25 spread is a steep 40 WS points of backwardation currently.

(TD25 RBI analysis)