Fernanda [00:00:00]:

This week on Freight Up, we discuss the extent to which the crude market has priced in the Israel Hamas war. We'll also bring you a long awaited FFA update. So stay tuned. All this and more on freight up.

Archie [00:00:13]:

Freight up.

Fernanda [00:00:16]:

Hello, and welcome back to freight up. My name's Fernanda, and I'll be your host. As we navigate the seas of rain commodities, let's talk fuel with the people's broker Archie Smith.

Archie [00:00:29]:

It's in a somewhat of a holding pattern at the minute, really waiting for any kind of major escalations in the Middle East. The beginning of this week crude really came off. Basically on the week, we're about $4 weaker train, around 89 50 at the minute. That kind of slump came Monday, Tuesday. This week we had positive PMI data out of the US. Which strengthened the dollar. I think the manufacturing stuff that came out of the US. Was a lot better than people expected it was going to be.

Archie [00:01:02]:

So the greenback strengthened against other currencies. And whenever the greenback strengthens, normally crude slips because all crude derivatives are traded in dollars. So obviously a stronger dollar, holders of other currencies have less buying power. Actually, we normally see that crude slip off when the dollar strengthens, which we did at the beginning of this week. Other downward pressures coming out of the US. Was a build in stockpiles from the EIA data that came out on Wednesday. EIA data showed a build in crude inventories which added a little bit more downward pressure on those prices. Earlier in the week, we had some macro data come out of the eurozone that was pretty weak all around, which kind of averted the market, the gaze of the market, we'll call it, from the Middle East to the west, thinking, oh, demand is going to be woeful.

Archie [00:01:55]:

Which is what the thoughts have been for most of the year, really. Well, I know we're in Q Four now, but for the rest of Q Four into 2024, is the demand going to be dreary? And that kind of really pressured the prices down as well. Obviously, there's been support from what is going on in the Middle East that seems still to be the resonating factor in the market. I mentioned the holding pattern earlier on. It is just all eyes on any potential escalation over there. Even this morning we've seen a little bit of support. Obviously, there was news yesterday that Israel were going to hold off the ground operation into Gaza, which kind of softened the market. But with it came the news that they're holding off just so that the US.

Archie [00:02:43]:

Can kind of get more troops, missiles, etc. All set up over there. And then one of the Israeli officials actually did confirm that the ground operation is going to go ahead. So it seems like it's just building in scale, if anything. Yes, delayed, but for a reason.

Fernanda [00:03:00]:

Yeah. So is the prevailing sentiment still that oil prices won't be affected unless someone like Iran gets involved.

Archie [00:03:11]:

Yes, 100%. So leads me quite nicely onto the next point actually the war premium, we'll call it, has been priced into the crude prices, you're bang on. That's why we've kind of been in this holding phase. Yes, we've seen some weakness because of some of the macro data and some of the stuff coming out of the US. But yeah, we're still just waiting. It's been in this holding pattern for a while now with Israeli troops on the border of Gaza and yeah if there's any escalation from other powers in the Middle East or anywhere really. Yeah, you're right. So it's very much just war premium at the minute and we're not going to see any major shifts probably unless another power steps in.

Fernanda [00:03:51]:

Yeah it's always so interesting because unless kind of like with the European economic data, unless something shinier comes through then this is going to be the talk.

Archie [00:04:03]:

Of the yes, yes. It's always the same with the news, isn't that once something else happens it's all eyes on that.

Fernanda [00:04:10]:

Yeah and that drives sentiment which drives prices.

Archie [00:04:14]:

Exactly.

Fernanda [00:04:16]:

So one of the big topics of conversation in your side of the office FIS, the Bloomberg report on physical prices, what's going on there?

Archie [00:04:25]:

Yeah so Bloomberg actually reported that some of the physical prices on the crude are actually slipping. And this is anything out the ordinary after reading it it just seemed like very kind of traditional seasonal change. As the Northern hemisphere heads into the winter months, the demand for the refining of gasoline slips and therefore I think yeah that's kind of been a knock on effect and then we've seen some of the physical crude prices slip. It's not so much slips, it's just there's normal level and then in the summer it goes up gasoline refining road trips because of US driving trips, European driving trips, et cetera, et cetera. Because everyone takes time off in the summer, goes see family, et cetera, et cetera. So then I'd say this is more of it just coming back to normal level opposed to shooting down because obviously gas is still going to be needed.

Fernanda [00:05:11]:

Right post summer road trip recovery.

Archie [00:05:13]:

Yeah, exactly. And other things take the front going into winter like heating oil and diesel for peters, et cetera, et cetera.

Fernanda [00:05:23]:

What else is going on in the world of oil?

Archie [00:05:24]:

That probably covers it for the crude in terms of products? The high five spreads have started to widen throughout the curve yeah because we're really seeing the high sulfur cracks come off. So the Euro high sulfur crack today already is down a dollar it's trading -16 in the front month it's down about $4 on the week. So that's really starting to slip on the high five spreads. Front month Euro trading over 110 now, front month Singh trading over 170 now obviously meaning that the Singapore very low sulfur fuel oil is $170 premium to the high sulfur fuel oil equivalent and even the Cal 24 contracts, they've really rallied. I mean, the euro up to about $100 indicative value. And the thing also really rallied up in the cow contracts as well. We've actually seen not just in the high fives but also in the flat price. We've seen a fair bit of buying interest from end user shipping hedges on our side.

Archie [00:06:28]:

It was like I mentioned earlier, when the crude was really slipping at the beginning of this week. It's quite a key mental point is when you go sub 90, people were holding off when it was over 90 because it might go to 100, whatever, but as soon as it comes sub 90, everyone's like, okay, let's lock in now. On the hedge, we saw quite a lot of buying interest on the Sing .5 euro, .5 some of the gas oils for Hedging purposes at the beginning of this week, making the most of that little dip when we had the weak macro data buy side interest in the fuel market driven by Hedging clients in small size. Not really market movers, but exciting stuff nonetheless. Exciting stuff nonetheless. Yeah. Other than that, fuel has been fairly steady. I mean, it's just high sulfur cracks that have really been moving.

Archie [00:07:15]:

The very low sulfur stuff has been pretty unreactive, to be honest with you. Yeah, the time spreads are pretty flat on the week. We're not really seeing massive intraday moves on them like you sometimes can. And even the very low sulfur cracks, pretty steadfast, seem to be fairly sturdy in light of what's going on. I know other products outside of fuel oil seem to be a lot more affected by the current happenings in the Middle East, et cetera, but yeah, fuel oil seems pretty firm at the minute.

Fernanda [00:07:47]:

No. Okay, we've taken all we could from you.

Archie [00:07:50]:

Yeah.

Fernanda [00:07:51]:

Oh, fantastic, Archie. We've milked you for all your worth.

Archie [00:07:55]:

That's absolutely fine.

Fernanda [00:07:56]:

We're going to release you back into the wild. Brilliant to go be amongst the other brokers.

Archie [00:08:00]:

Thank you very much and we'll see you next week. See you next week.

Fernanda [00:08:07]:

Now, let's talk about FFAs. So I just wanted to come in and give you an overview of the paper market. We'll discuss physical next week but do have an update on the paper to provide you some color for the week. So the theme for this week was bearish as the Cape market ended the past week relatively flat with prices on the November contract just shy of 20,000, reaching a high of 19,700 on Friday the 20th. However, after the weekend, the markets took a tumble with sellers entering in force, dropping the November rate to a low of 16,125 today. Meanwhile, December remains relatively flat starting the week off with highs of 15,825 on Monday to lows of 15,350 on Thursday. Q Four and Q One followed in suit, with Q Four trading at highs of 20,912 on monday and then dropping to lows of 18,725 on Thursday. All the while, Q One is staying relatively flat, having started the week with highs of 9050, ending on Thursday with lows of 7950.

Fernanda [00:09:24]:

Not much movement on the Cal 24 either, as we started with highs of 14,075 on Monday, moving to lows of 13,550 on Thursday. Actually, the most interesting movement this week in regards to Capes was the Index, which started the week at 28,805, nearly 1500 above the month to day average of 27,357 on Wednesday. The index had moved down to 24,386, nearly 3000 lower than the month to date of 27,181 on 26 October. So this bearish sentiment was also there with the Panamaxes as we saw the November contract there start the week with highs of 13,025 and end with lows of 11,675 on Thursday. Unlike the capes, the Panamax December contract did not hold its nerve as well, falling from highs of 12,100 on Monday to lows of 10,850 on Thursday. So a bit of a tumble there. Q Four and Q One traded in a relatively tight range with Q Four starting with highs on Monday of 12,725 and lows on Thursday at 11,908.5. Similarly, Q One started the week with a high of 9175 on Monday and ended at a low of 8550 on Thursday.

Fernanda [00:11:06]:

Cal 24 remained largely unmoved from a high of 11,175 on Monday to a low of 10,550 on Thursday. In Supermax World, the November front month started smith a high of 13,225 and fell to lows of 11,900 on Thursday. The December contract fared similarly, starting with highs on Monday of 12,125 and dropping down to lows on Thursday of 10,850. Q Four and Q One remained a bit tighter as Q Four started on Monday at 12,987.5, ending on Thursday with a low of 12,137.5. Q One similar story 9300 on Monday at its high, down to 8675 on Thursday. Now, the only one keeping it tight here is Cal 24, which started at a high of 11,200 on Monday and ended Thursday at a low of 10,737.5. That is a quick overview of where the FFA market is this week. We'll bring you more color and some physical updates next week.

Fernanda [00:12:36]:

Until then, well, that's it for us this week. Thank you so much for joining us and as always, I'm going to take a minute to beg you to go on freightuppodcast.com and leave us a comment, a review or just a note. Say hi. It would mean the world to us because we want to make this show as useful for you and to make sure that you feel like you're part of a community. Until next time, Freight Up.

ffas

Bloomberg report reveals slipping physical prices in crude market! And a weekly market report.