Intermodal Weekly Market Report for week 24 2022 By Chara Georgousi, Research Analyst

A rare combination of a strong US dollar and high oil prices, paired with intensifying inflationary pressures, have been the key underlying drivers of the current market volatility. While crude oil prices fell in April to trade at a narrow $10/bbl range above $100/bbl, early-May advances on the sixth round of EU sanctions against Russia drove renewed price tensions, amidst strong inflation trends. Crude oil spot prices recorded solid gains in May, supported by strong physical crude market fundamentals. ICE Brent futures also rallied during May, climbing at $122.84 intramonth, mainly driven by tight oil product markets and high refining margins, which have prompted refineries to increase throughputs, boosting crude demand, specifically for light sweet crude.
Moving forward, Brent’s price continues to rally within June with the highest intramonth price surging at $124.88 on June 14. However, on Wednesday, following the announcement of the largest hike in Fed interest rates since 1994, amidst the Fed’s effort to rein in prices in its bid to arrest inflation with the aid of conventional monetary policies, oil prices plunged from $115.82 to finally close at $113.58 on Friday evening. The Fed also signalled that more rate hikes will follow, with a potential 0.75% point hike within July, projecting a further market turmoil. It is now strongly rumored that a recession is more likely after the rate increase and investors now turn to lower-risk investments, due to high market volatility. Although we would expect to see oil prices balance at lower levels after the rate hike, a tight balance between supply and demand will most likely retain oil prices at higher levels. Supply-wise, with limited expected summer increases from OPEC+ during summer, Libya’s volatile production due to recent blockades, disruptions in Nigerian crude output, and the doubtful prospects of Iranian sanctions relief, global oil supply is expected to remain tight and the question is how long will the oil price remain within recent margins.
The oil trade is also currently adapting to unstable market conditions, especially amidst strong pressures on Russia from intensified EU Sanctions. As the EU banned purchases of Russian seaborne oil and oil products (about 4MMbpd), Russia will be severely affected by losing over $1bn/day for oil & gas. Europe is now weaning itself off the Russian Urals and is opting for crude from across the Atlantic and via the Middle East while passing extra pressure on European customers. Commenced on Wednesday, Russia’s flagship annual economic event, the Saint Petersburg International Economic Forum, is expected to unveil the country’s direction towards adapting to the latest sanctions, including new potential partnerships with countries doing business with Moscow. Putin underlined in his Friday speech that the “EU has fully lost its sovereignty’’, indicating Russia’s resilience towards EU’s sanctions and further questioning the sanctions’ impact on the EU member countries.
Asian buyers, including primarily China and India, have benefited from sharp discounts for Russian cargoes, which could be at around a $40/b discount to Dated Brent. Although we have witnessed a decrease in Russia’s oil output following Russia’s invasion of Ukraine, we are now noticing a significant increase in June m-o-m, up around 600,000 b/d. Russian seaborne crude reached post-pandemic highs in the first half of June. Trade has significantly reallocated following Western sanctions on Russia, with China opting out of Saudi Arabia imports and becoming the main importer of Russian crude, along with India, and therefore, considerably increasing tonne miles. For instance, China’s imports increased from 6.338M in March and 6.551M in April to 8.419M in May. India, continues to show growth in crude oil demand, with an increase of 0.5mb/d, y-o-y in April, according to OPEC, amidst improvements in economic and social activity and the easing of pandemic containment measures.
Conclusively, with a tight balance between crude oil supply (99.136M) and demand (98.875M) and an expected increase in demand by the end of 2023 (up to 102.7524M), according to IEA, it is highly questioned whether the decrease in oil price witnessed within the last few days will last to offer, at least, a temporary relief to the market.
Chartering (Wet: Firmer / Dry: Firmer)
Both the Capesize and the Panamax sectors have found a floor last week with rates increasing as the week progressed. Geared sizes performance was uninspiring last week yet with earnings still hovering at very strong levels. The BDI today (21/06/2022) closed at 2,484 points, up by 200 points compared to previous Tuesday’s closing (14/06/2022). A combination of tight tonnage supply and cheaper fuel prices helped owners to increase their market share during the past week. The BDTI today (21/06/2022) closed at 1,207, an increase of 60 points and the BCTI at 1,725, an increase of 104 point compared to previous Tuesday’s (14/06/2022) levels.
Sale & Purchase (Wet: Firmer / Dry: Firmer)
The SnP market experienced a fairly fervent action the past week, with strong both wet and dry activity. In the tanker sector, we had the sale of the “KOHO I” (301,045dwt-blt ‘02, Japan), which was sold to undisclosed buyers, for a price in the region of $29.0m. On the dry bulker side sector, we had the sale of the “MAJESTIC SKY” (81,949dwt-blt ‘14, Japan), which was sold to undisclosed buyers, for a price in the region of $33.0m.
Newbuilding (Wet: Stable – / Dry: Stable+)
The last week was quite firm for the shipbuilding sector with boxships attracting most of buyers’ attention for another week. Starting with the tankers, a single vessel was ordered; Norwegian Knutsen placed an order at COSCO Zhoushan for a single 154,000dwt shuttle tanker, at an undisclosed price. In the dry sector, the Chinese company Zhejiang Xinyihai ordered three 63,600dwt bulkers at COSCO Zhoushan, due to 2024 at a yet undisclosed price. Regarding the LNG sector, a single deal was recorded, for two 174,000cbm units between the Greek Capital and the Hyundai Samho yard, at the impressively high price of $240.0m each, to be delivered in 2026. On the Container realm, ten orders were recorded, with 4 additional options, including a variety of sizes, from the Chinese BAL, Greek Navios and Belgian Seatrade in South Korean and Chinese yards.
Demolition (Wet: Softer / Dry: Softer)
The demolition market activity remained low with cash buyers unable to keep up their previous week’s momentum. The steel price volatility coupled with the ongoing currency depreciation in Bangladesh and Pakistan has pushed both breakers and steel mills to the sidelines while the monsoon season has further pressured steel demand. As a result, we noticed a w-o-w decline on offered levels from Bangladeshi and Indian breakers with Pakistani ones ending up the week steady amidst empty scrap inventories. The latter has seen its local currency reaching another low historical level crossing the 209 mark per one US dollar. Lastly in Turkey, steel mills have adopted a conservative approach to fresh sales against a backdrop of a continued decline in imported scrap prices leaving little room for breakers to improve their bids. Average prices in the different markets this week for tankers ranged between 290-610/ldt and those for dry bulk units between $280-600/ldt.

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