G7 Price Cap Debate: Russian Oil Impact & Ukraine Crisis: New expert broker insights

00:00:00 Today we'll be discussing why the G Seven price cap on Russian oil may not be effectively halting the invasion of Ukraine. We'll also be quashing any debate on the lingering impact of that cyclone in Western Australia. All this and more on freight up. 00:00:16 Hello, and welcome back to Freight Up, where we navigate the world of freight and commodities markets. This week, you'll be getting a fuel oil update from your favorite office backstreet boy, Archie Smith. A freight update from our head of business development, carrie Deal. And finally, all the way from Shanghai, China, an update on the Ferris complex by our senior researcher. How pay freight up? 00:00:41 If you haven't already, please make sure to follow us on Apple podcasts spotify, or wherever you get your podcast from. And now to our fuel oil desk with Archie Smith. Welcome back, Archie. Good to be back. So let's cut straight to the chase then. 00:00:57 There's been some heavy speculation that Russian oil has entered the market. Can you walk us through that a bit? Yeah, this is in relation to the $60 a barrel price cap that was set by G Seven nations on Russian Euros crude last year in a bid to reduce the amount of revenue that's going into Russia's war chest that they will then obviously use to fund those operations in Ukraine. And until now, that price cap hasn't really been tested because Russian Euros crude has been trading below that $60 level in the market anyway. So obviously, if it's trading below the $60, it's absolutely fine. 00:01:29 But off the back of the OPEC announcements at the beginning of April that they were cutting production, euros has been creeping up towards that $60 mark. And there's been some loaded cargoes that have been shipped to China and India in the first half of April that supposedly have been purchased at above that $60 per barrel mark. On top of this as well, there's kind of been a resurgence for Russia in their export revenues. Just in general, they're exporting a lot more. I know that their March revenues were $1 billion more than those of February for the oil exports. 00:02:03 I think it's time for G Seven to really kind of weigh up the effectiveness of this price cap, whether to revisit it or go for a different approach altogether. We did see breakthrough futures really dump. It was a sharp drop. We were kind of creeping down towards 83 80 level. As soon as we touched there, there was a sharp drop to like around 83 ten mark. 00:02:22 Kind of speaking to traders at the time, we believe there was a lot of stop losses there. As soon as the level got there, a lot of long positions were liquidated. There was a lot of selling purely because of just market behavior. The stop loss positions that we believe were around that level, we have actually this morning seen the market come off again. So, yeah, we are trading a lot lower on the day today. 00:02:42 We settled yesterday evening around the $84 mark. When I left my desk, we was around 82 30. So it is coming off today. So then let's talk about spreads, shall we? Yeah. 00:02:54 So looking more specifically at the fuel spreads, they've been pretty flat recently, especially in the Sing .5, the front spreads, the May June, last I checked, it was nine and a quarter bid on screen versus 975 off fire. It's kind of been hovering around those numbers for the past few days at least. So, yeah, we're really not seeing much change in the spreads. These seeing ten Ppm gasol spreads have narrowed up, actually going down the curve, narrowing a lot more, showing a bit of demand in those later months. But on the most part, we're not seeing massive movement in the spreads at the moment. 00:03:31 And finally, Archie, why don't you take us to the Visco? Yes, the viscosity spreads effectively, this is just the difference in price between the 180 CST and the 380 CST singapore fuel oil of recent weeks. We've really seen that spread tighten up, especially in the front months. I know the May visco is trading around $5.50 at the minute in history. That's been kind of around $15 to $20 mark. 00:03:54 They're really tightening up. I think that's just kind of market behavior. The 380 crack is a lot stronger, which is supporting that high sulfur fuel oil price and therefore narrowing the gap between the one and that's definitely something of note, is how tight, especially in the front months, those spreads are becoming. And what do you have coming up this week? Aren't you any more lads weekends that we should be on the lookout for? 00:04:15 Lovely, quiet weekend plans, which I'm quite looking forward to. I'm watching the West Ham tomorrow. Are they forever blowing bubbles? They are forever blowing bubbles. You've got it right. 00:04:24 Well done, well done. Really fitting into the English culture there. I'm studying for my life in the UK. Yes, well, I think you're studying correctly then, because life in the UK is 90% football. Well, fantastic. 00:04:37 I think you're definitely on the right track there. You'll have to keep us updated on what they do. Yeah, well, hope we should win. We should win, but it's West Ham, so you never really know. Archie Smith, ladies and gentlemen. 00:04:48 We'll see you next week. Thank you very much. Thank you. Up next with an update on the freight market, Carrie Deal. Welcome back, Carrie. 00:04:59 How are you doing? Really good. Thanks, Fernanda. Good to be back. Here the big story last week, and still this week, is that big storm hitting Western Australia. 00:05:08 So what happened in the end? Well, last week I discussed how the threat of the Australian cyclone had caused rates to dip a bit. Well, that cyclone threat is long gone in terms of the shipping markets, at least. And as we predicted, it did not disrupt shipping operations. At headland too severely. 00:05:24 I had also said that what was more worrying was perhaps the slowdown in cargo out of Brazil. The excess of balusters that we were starting to see that was putting a little bit of pressure on those C Three rates. And unfortunately, it's that trend which has continued. While volumes out of Brazil haven't been terrible, they haven't been enough to stop C Three rates from tuberada Qingdao falling from near $22 down to the low $21 per metric ton. More significantly, perhaps, despite a very brief rebound in chartering activity after that cyclone passed. 00:05:56 So that would have been the slight effect of the cyclone as a brief rush afterwards, the C Five West Australia to China iron ore route has weakened, with charters happy to hold off rates falling from over $8 to reportedly now $7.60 being done. The macro data has been presenting a mixed bag too. The overall positive headline GDP growth in China of 4.5% for Q One is disguising some weaker signals for steel demand. In particular, that property investment fell by 5.8% year on year in the same period. Chinese blast furnace utilization is also remaining at or above this 92% level. 00:06:33 And so we are essentially at the theoretical maximum, meaning there is no room for increased production using iron ore. So when you say that there's no room for increased production, what about other materials? Well, you could see incremental gains in steel production that I could see using scrap metal. So there is something called an electric arc furnace. This melts down scrap metal to make steel. 00:07:00 But scrap metal in China will largely be domestic supply, and in any case, it certainly doesn't ship on Cape size vessels. On a slightly more positive note, chinese coal imports in March soared. They were 41.2 million metric tons. That's up from 16.4 million last March. And this really shows the strength of that post pandemic rebound. 00:07:19 A lot of this coal is thermal coal coming from Indonesia, however, with only a small minority coming from Australia. That's despite the lifting of the Chinese ban on Aussie coal imports. Therefore, this is likely to help the big ships only incrementally, but it should be seen a little bit more on the Panamaxes in the meantime that Cape paper has been reacting to the overall negative sentiment. May 5 TC futures have dropped from a peak of 21,000 last week down to 18 three two five value today on FIS Live, while Q Three is trading at 22,800 today. So you mentioned that the increased Chinese coal imports might be felt more on Panamax. 00:07:56 So what's happening in that market then? Truth be told, despite that, the Panamaxes haven't been that inspiring either. In the Pacific, we've seen more cargo coming out of Indonesia for sure, especially for end April, early May, Lake Annes. But it hasn't been enough to budge rates too much. Last week saw levels grinding down in both basins, with the Atlantic in particular leading the way down against a loss of confidence. 00:08:21 We saw a very heavy tonnage list. Not a lot of new cargo coming out this week. An influx of new cargoes in the North Atlantic has seen rates stabilize, but with few charters ready to chase that market up right now on the paper, May Panamax four TC futures are essentially flat on the week trading. 15 eight, two five today, while the Q three is actually up $500 on the week, valued 69 50 today on FIS Live. Wonderful. 00:08:46 Thank you so much for that update, Carrie. Now, a few weeks ago you did promise me Turkish delight. I did indeed, and that is still to come. So just for those of you who might be attending, I will be in Istanbul from the 8th to the 11 May that is attending Freight Investor Services. Cobalt Congress there discussing all things battery metals. 00:09:07 So for anyone who's going to be there, do look us up. I'll be there with our head of battery metals, Jack Nathan, and we look forward to seeing you there. Sounds like a riveting weekend. Exactly. All right, fantastic. 00:09:18 Thank you for joining us, Carrie. We'll see you next time. Thanks. Fernanda. 00:09:23 And last but not least, joining us today, all the way from Shanghai, a voice that you will probably recognize, Hao Pay. How are you doing, Hal? Good. Thanks for introducing me. Can you tell us a bit about what you do here at FIS and about your career in general? 00:09:42 I've been the first traders and researchers for ten years, and ten years I've been with FIS as researcher, growing with FIS. We've been seeing FIS research from daily curves on a few colors to more independent and dynamic and with more influential statistics and more market dominated, and we have more market impact on the research areas. I think I was growing with FIS and I was very happy to work in the company at the wonderful team. All right, Hal. So that cyclone just hit the Western Australia ports, but we didn't really get a market reaction. 00:10:27 Is there going to be a delayed reaction here or are we in the clear? I don't personally think there will be a delayed reaction on the market sentiment since the cyclones is over and the cyclones have 700 tons of impact from Australia to China. As we all see, there are roughly 200 to 250,000,000 tons of increase from Brazil and other countries or other monies last week. And some of the market participants expect the delivery pickup in the next three or four weeks. So I think the general impact in April export from Australia to China would be very tiny in late April. 00:11:12 So in general, I don't think it will have a late reaction on a market sentiment from my perspective. So when it comes to those back month contracts, how what's going on with them in the SGX and DCE? I think the SGX September will calculate at least twelve to 13% higher than the DCE September with the same underlying the physical side I think generally they are contributed by two major reasons from the DCE site is that the DC contract rolled from May to September on the exit contract, which caused traders to roll the fixed cargoes to the farmer, which was offset in May with a buy and September with a sale. Moreover, on the other side on dollar market, on the SGX market, traders believe that a safer to lock sells at farmers instead of a current month which is high and unsafe. So they sell in the front and buy in the forest. 00:12:17 So that's the reason the SGX brand looks so big versus DC value. And in addition I don't think it's going to be consistent because it happens to have the two group of arbitrages doing the same thing in the same time window. It is abnormal in historical rules. I think it's inconsistent. By the way, the difference of spread will narrow in the future given the future weeks. 00:12:50 Ladies and gentlemen, that was Hal Pay from Fisch. Thank you so much for joining us. Thank you Fernanda. 00:13:02 Thank you so much for joining us. And if you haven't already, make sure you're following us on Apple podcast, Spotify or wherever you get your podcast. And as always, if you have any questions, comments or would like to chat with one of our experts, feel free to send us an email at breakup@freightinvestor.com. That's freightups@freightinvestor.com. See you next week.