- The past week was about the news of collapsing oil prices, as WTI reached negative prices.
- Whereas, the start of this week the award for ‘biggest faller’ is given to the freight markets.
- Just as you had thought you understood the trends in the markets they have completely changed again.
- Cape front month fell midweek by $1k and at the same time Baltic Cape 5tc Average had fallen around $1,400.
An article published in Freight Investor Services deals with the falling freight rates and it’s recurring impact on the industry players.
Oil markets show new signs of life
The oil markets last week were in intensive care, but it seems that, for now, they have recovered somewhat and are showing new signs of life. Brent June futures did drop below the $19 briefly, but we are safely back above it again, touching the lofty levels of $25.
Even so, this rise is the result of shaky logic. Traders were expecting oil storage to fill up quickly, with nowhere else for it to go, and no drop-off in production to match the demand destruction that has occurred.
The EIA had been reported US crude stock levels at 15 mil bbls in the weeks prior, causing alarm at how quickly storage would fill up if those rates continued. This week they reported only a 9 mil build, lower than expectations of 10 mil, and significantly lower than the 15 mil bbls levels of previous weeks. We therefore have an oil rally based off the logic of ‘it’s not as bad as we thought it was’, which is never a good place to start.
Freight Market
For the freight market, the reverse has happened. We had thought we might be out of the woods, with rates increasing slowly before this week disrupted their march. Cape front month fell midweek by $1k and at the same time Baltic Cape 5tc Average had fallen around $1,400. This had been caused in part by increasing ship speeds due to lower fuel costs, which exacerbated the problem of weak cargo demand.
Rates are recovering again at the end of the week and the glimmer of hope from the news that Vale is speeding up the scrapping of its converted VLCCs could give the market the impetus it needs to move higher.
The iron ore – the ugly duckling
The ugly ducking of the group has been iron ore, that has stood still, staring at all the other commodities wondering what all the fuss is about. The market has been caught on a narrower path than a tightrope walker with vertigo. The Platts 62% index has fallen around only $1.20 since last week, but steel inventories are now moving faster which could be the first signs of some market changes ahead.
In times of such uncertainty be wary of the person who says that they know something with certainty. We are going to be up, down, and all around for a while to come, as to be honest, no one really knows what comes next.
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Source: Freight Investor Services
