HSFO380

Open Interest for June 380 has now surpassed the 6 million tonne mark, building on the 5 million threshold that was already looking highly significant. The physical market is increasingly supporting what was initially perceived as a derivatives-led move.

NORTH WEST EUROPE

Potentially 2.537 million tonnes earmarked for North West Europe as things stand.

That is broadly comparable to Aramco’s Red Sea commitments, except without the thermal power station off-ramp.

All of this fuel does have a home in the Far East, but freight simply does not work.

The biggest disparity remains Caribbean barrels.

That Colombian 65kt cargo referenced last week demonstrated this perfectly:

• USD 62/mt to Singapore
• USD 27/mt to Rotterdam

In some ways this is convenient for the 380 bull run that Vitol started and which Trafigura have now joined.

Open Interest broke through 6 million tonnes last week across June and July 380, but it probably has serious legs.

On the one hand, you can see how it is manifesting itself physically.

On the other, you have two participants operating without traditional VAR constraints, and importantly not in cahoots — competing in fact.

Adversarial in nature perhaps, but ultimately complementary to the broader move.

TRANSATLANTIC FREIGHT

For anyone wanting to understand the freight backdrop and potentially gain some surface area to get involved, the transatlantic economics remain highly relevant.

AFRAMAX

PANAMAX

Going by the data:

• East Coast Mexican material looks likely to remain US-bound.
• Colombian barrels look best suited to NWE or the Red Sea.
• Venezuela remains the biggest variable in play.

Venezuelan material is SRFO, although it remains unclear whether it possesses the same quality profile as SOMO material exiting Syria — a barrel that refiners such as Repsol would willingly absorb at Tarragona.

West Coast Mexican barrels may ultimately be the better fit for Singapore.

However, TMX crude out of Vancouver continues to keep transpacific freight elevated.

A rough guide:

• West Coast Mexico → Singapore (90kt): ~USD 5 million
• West Coast Mexico → Singapore (65kt): ~USD 3 million

THE BIGGER PICTURE

What began as a 380 positioning exercise is increasingly being reinforced by physical reality.

The arbitrage favours Rotterdam.

Freight favours Rotterdam.

And a growing amount of SRFO and HSFO inventory is finding its way there.

The swell continues to build.