TC14 USGC MR Market Report

USGC MR vessel supply in the seven-day ahead window is long at 22 ships against a 90-day moving average of 16, 6 above average. Incremental demand is deeply negative and the Freight Supply and Demand (FSD) model forecasts rates to soften from WS 308 to WS 273 into the 9 to 18 August load window. The model forecast looks to be too tame.

TC14 FFA moneyness sits at -$7.92, confirming spot is trading materially above fair value. August paper traded from WS 280 down through WS 275, WS 265, and WS 262 yesterday, a steady day of paper weakness in line with the model forecast for spot rates.

The ballaster wave flagged as an emerging risk last week has arrived in force. Almost all of the three dozen vessels sitting in the 10-day window are either FOC or in ballast, with transatlantic tonnage continuing to make its way across from multiple directions. Fresh vessels are now appearing from WAF as well, adding further-ahead ballast itineraries to an already extended position list. Tonnage following behind the current wave suggests that even as the front end clears, fresh supply stands ready to replenish it.

Yesterday morning opened with only two short-haul cargoes providing any market reference. Nave Jupiter went on subjects loading USGC to Caribs at $875K for a 7 August laycan and STI Mythic went on subjects loading USGC to EC Mexico at $675K for 6 August. There were no long-haul fixtures yesterday. The absence of transatlantic enquiry is telling as it implies that charterers are now fully aware that the correction has further to run and are in no rush to fix, but rather to wait for the bottom to form.

The arb and incremental demand picture offers a mixed backdrop. Houston to Barcelona diesel remains open by +$7.00/mt for mid-August load, the most constructive transatlantic diesel margin in recent weeks, but the window closes sharply from September. Houston to Rotterdam diesel also remains open to start this week with a positive margin of +$5.00/mt.

Houston to Santos diesel is negative in August at -$1.70 cpg but turns positive from September at +$9.35 cpg, and Houston to Buenos Aires diesel follows a similar path. Houston to San Jose gasoline is open by +$4.85 cpg in August. The arb outlook is supportive of incremental vessel demand for the second half of August, but the first half of August vessel supply is too long and too prompt.

The dynamic and outlook now is relatively straightforward. Charterers know the correction is coming and are content to let the list build further before committing, confident that each day of inactivity brings a lower next-done level. Watch for spot and August TC14 rates to approach WS 212. This was the mid-July low when seven-day ahead counts were similar to now.

If counts approach 30 open MRs in the seven-day ahead window then expect rates to test down as far as WS 140. Once cargoes begin to move in volume, which could be relatively soon given the working window is already here and diesel arbs to Europe reopened last week, the race to establish the new floor in rates could be swift. Margins would materially improve with sub WS 200 TC14 rates.

With 22 ships in the seven-day window, incremental demand currently negative, paper softening, and ballasters continuing to arrive from all directions, the near-term direction for spot TC14 is unambiguously lower. The WS 273 model forecast looks increasingly like a ceiling rather than a floor today. Owners should prioritise clearing positions over holding for higher levels. Charterers: the fundamentals are firmly in your favour in the first half of August trading.