Smax freight looks over-valued, pair trade with 0.5 EW worth a shot?

Three weeks ago I wrote about how rolling (calendar) M+1 0.5 EW tends to mean revert around Freight & Cost for the Rott-Sing Smax route, and that the gap was mostly closed as EW was moving up.

Since then, Smax freight has firmed up at the same time that EW paper has weakened. The result of that is currently a $12-13/MT gap between EW and physical freight & costs for mid-Jan Rotterdam loader (calendar M+1 chart below).

TD20 is of course still at historically very high levels with Jan hovering around 128-130 WS.

However, our Relative Basket Index (RBI) seems to indicate sizeable over-valuation of TD20 in particular and Suezmax routes in general. That does imply a more bearish tone for Smax freight in the short term at least.

Not directly related to the above but looking at the East vs the West, one interesting thing I also noticed while taking a look at the respective blend-cost derived Hi5 (the difference between the cost blending 0.5 and blending 380/3.5 from the blender) in each region is that the models still indicate paper Hi5 being under-valued in the East but pretty much in line in the West.

Hoa brings extensive experience, having led fuel oil analysis at Trafigura and worked across crude, diesel, and APAC power markets. Hoa now leads the development of Sparta’s forward-looking tools for fuel oil and feedstocks.

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