An increasingly inefficient freight market is where oil traders stand to make money, according to one of the world's largest ship charterers.
"The margin is very obviously in shipping at the moment," Gunvor subsidiary Clearlake Shipping co-head Andrew Jamieson told the CERAWeek by S&P Global conference in Houston, Texas, on Wednesday.
Jamieson said he has seen a two- to three-fold increase in the use of derivatives known as forward freight agreements (FFA) to hedge parts of such transactions. "The trader doesn't want to be short [freight] anymore, he wants to lock in that leg because he knows that is his margin," he said
Inefficiencies resulting from the "shadow fleet" of tankers moving Russian crude, which Jamieson estimates at about 700 vessels, along with sanctions and regulations, have made for a complicated freight market where the ton-mile — the cost to move cargo from one location to another — has increased "enormously."
Global disruptions in trade flows due to conflict have also compelled many market participants to take a more pragmatic view of owning more of the supply chain, including transportation on the water. Freight rates are an indication to Jamieson that the market does not expect the dark fleet ships to return to the mainstream markets.
"We think these inefficiencies are here to stay," said Jamieson, indicating more customers are wanting to buy crude closer to the source, or freight on board (FOB) rather than delivered, to mitigate risks.
Geopolitical events "have really played havoc with the freight market," said Occidental Petroleum senior vice president Geoff Houlton, causing ship owners to "majorly" change their trade routes.
"We're more focused on flow assurance," said Houlton, highlighting producers' desire to have diversity among markets and the ability to load larger ships.
