Dominating the news this week has not been the hopeless story of a Southern girl’s love for a married man, but rather the twin storms in the Gulf of Mexico. The bluster behind this story left oil and tanker markets in a spin with impending disruption and shutdowns.
As of late Thursday, Hurricane Laura was rapidly approaching the Louisiana coast and experts are speculating that this could signify the biggest threat to output since 2005, the year Katrina halted operations of oil refineries along this stretch of coast.
Experts predict that the hurricane is scheduled to bring sustained 115mph winds, though reports Thursday suggest the storm surges are yet to be seen. Reuters approximate that the halted operations in the area account for 2.9mil bpd, representing 14.6% of total US production.
Like a rabbit in headlights on a windy winter’s night, the twin storms gave the market all the impetus it needed to panic and push over $46 on front-month Brent, capping off what would have been a decent month for OPEC’s oil producers. Since that initial rise in price, things have cooled off somewhat to around the $45 mark, but it has demonstrated that perhaps we have moved past the period of concern being about oversupply, and that supply disruption factors there are back in effect.
Last Friday we ended the week with Brent at $43.74 and at the time of writing we are at $45.26. Not a bad movement for a market that is still recovering from catastrophic demand collapse and has recently relaxed supply restrictions by 2mil barrels per day. It was a storm in a teacup of a week, and we expect things to calm further after the weekend.
In the tanker market, hurricane season normally sees, freight rates increase, driven by a lack of available tonnage as owners fix vessels fix away to lower risk, ports close, increasing delays so racking up demurrage and refiners shut down and reduce their runs. After the hurricane passes things will take time to come back online and vessels may not be available for charterers to resupply refineries as there would theoretically be a shortage of prompt tonnage in the region.
Specifically, TC2 (ARA-US continent) saw a flurry of activity on Monday morning. Worldscale levels jumped from WS112 at the end of last week to a high of WS130 on Monday, before then coming off slightly to WS122, up some 10pts over the weekend. Tuesday onwards saw owners tighten the noose, with levels fixing up to WS150+ for transatlantic voyages and TC2 spot futures saw WS144.44 up from WS85 last week.
Dirty routes have not yet seen much hurricane activity with only the USGC/UKC routes values falling from WS77 to 75 yesterday, when at the end of last month SEP rates sat around 10pts higher. But with lower than expected imports to China and a US oil industry in crisis, perhaps this is no surprise.
Iron ore has been blown off its incredible course northwards as prices dropped a little this week. Last Wednesday September was pricing around $125, then fell to $117 at the time of writing. Weakness in the Chinese steel market and speculation that the bull run would run out of steam soon checked prices.
Dry freight was caught in the whirlwind around the $18,000-$19,000 per day level for Capes and $13,000-$14,000 for Panamaxes. With ballast tonnage in plentiful supply, and the expected ramp-up in Brazilian shipments of iron ore yet to emerge, there’s a balance to the market just waiting to be disrupted.
So in our breeze through the markets this week there has been considerable impact from the storms in the oil and tanker markets; the others are bracing the incoming weather front ahead of whatever happens next.
Do you want to receive ShipShape directly into you mailbox? If you’d like to subscribe directly please email us at enquiry@freightinvestor.com.