Crude oil

The plunge in freight rates promoted a rebound in oil prices, but the follow-up momentum was limited. In this round of oil price rebound, the plunge in freight rates may be an easily overlooked but extremely important driving factor. In the last week of April, the tanker route TD3 on the benchmark route from the Middle East to the Asia Pacific fell from $8 per barrel to $2 per barrel below, a drop of more than 70%. Judging from the logic behind the drop in freight rates, the decline in the export volume of Saudi Arabia and various Middle Eastern oil-producing countries is the main reason. Taking Saudi Arabia as an example, its crude oil export volume increased from 7 million barrels per day in March to 9.4 million barrels per day and then fell to 6 million barrels per day in May, which is equivalent to the reduction of the loading of nearly two VLCCs in Saudi Arabia after May. In the context of severe oversupply in the current crude oil market and tight storage capacity, freight is the core variable that determines the economics of floating warehouse hoarding and arbitrage. It means OPEC+ production cuts are not entirely for the short-term profit of the crude oil market, but by reducing the supply, more by increasing the availability of tankers and reducing freight rates. The current cost of floating warehouse oil storage also determines the lower limit of the monthly difference of Brent crude oil. After the freight rate plummeted, the profit space of floating warehouse oil accumulation arbitrage increased significantly, and traders have more incentive to increase positions in spot and nearby month contracts. We have also noticed that the monthly difference between the first line and sixth line of Brent crude oil rebounded from $10 per barrel to $5 per barrel from the end of April. That is, after the freight rate plummeted, the monthly difference in crude oil also rebounded. After narrowing the monthly spread, the arbitrage space has narrowed, but there is still room for operation of floating warehouse oil storage, which also means that the number of floating warehouses will continue to increase in the short term. According to data released by Vortexa, as of last week, the global floating warehouse inventory amounted to nearly 160 million barrels, and according to IEA estimates, the number of floating warehouses may still increase by 150 to 200 million barrels, becoming the main storage solution after the current onshore storage capacity is tight. However, from the perspective of the freight rate to boost the crude oil market, the freight rate has returned to the historical normal level, and the room for continued decline has been quite limited. Considering that the oil storage in floating warehouses is still needed in the future, it may mean that it is necessary to rent VLCC with a younger ship age or smaller Suez and Afra boat, which means that the arbitrage cost is further increased, so the benefits brought by freight are more one-off. From the perspective of cost structure, it is difficult to drive a further rebound of crude oil in the future. We believe that the future rebound in oil prices will depend on the speed of supply and demand rebalancing and the upper limit of storage capacity, which will be a process of uncertainty and twists and turns in the short term. In terms of futures operation, it is advised to maintain the neutral strategy and wait and see.

Natural Rubber

Overseas rubber fluctuated strongly. The main force contract of TF08 rose by 0.6 or 0.52% and closed at 116.1. The main force contract of JRU09 rose by 0.4 or 0.26% and closed at 152.7. The SHFE rubber rose slightly. The main force contract of RU09 fell by 35 or 0.34% and closed at 10,310, and the main force contract of NR06 fell by 5 or 0.06% and closed at 8,440. The quoted price for Qingdao rubber fell by $5 per ton with general inquiries. The quoted price of RSS3 was $1,400 per ton. The spot price or CIF of STR20 was $1,170 to $1,190 per ton. The CIF of SMR20 in August was $1,200 per ton. The CIF of mixed rubber from Thailand in August was $1,210 per ton.

Gasgoo News: Continental's sales and profits in the first quarter fell sharply. The main reason is that due to the impact of the new coronavirus epidemic, the Chinese auto industry has ceased production. According to current estimates, China’s passenger vehicle and light commercial vehicle output fell by approximately 50% year-on-year during the reporting period, and the European market (approximately -20%) and the North American market (approximately -10%) also performed badly, global car production was 17.3 million units, a decrease of about 25% or 5.7 million units compared to the same period last year.

It is the Royal Cambodian Spring Plowing Ceremony in Cambodia and the local market is closed. In China, tapping in Yunnan and Hainan has started fully, and the latex quotation returned to normal after being suspended for the past six months. Among them, latex in Yunnan reported to about ¥8,500 per ton, which is flat with the cup lump. According to the latest data released by Zhuochuang, the operating rate of domestic semi-steel is only 28.3%, down 46.1% week-on-week and 58.5% year-on-year. Weak exports and the May Day holiday have a greater impact on the semi-steel production line than the all-steel production line.

Futures Operation Advice: The SHFE rubber fluctuated weakly. As for the long position of the main RU09 contract, it is advised to set a stop at the previous high level at 10,190.

(For reference only)