AG diesel arbs should be plentiful to Europe whilst high freights keep the USGC arb closed

26 June 2024 Time to read:  minutes


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July’s Singapore diesel crack and spread. (Sparta Live Curves)

As discussed in last week’s commentary, “Considering these factors, we maintain a neutral to bullish view on Singapore diesel pricing moving forward.”

This week, both Singapore diesel cracks and spreads have largely continued their upward trend since the start of June.


July’s GO E/W & Jubail to Rotterdam, Singapore and Barcelona LR2 freight rates. (Sparta Live Curves)

The GO E/W has remained flat over the previous week, whilst freights East and West from the AG have increased.


July’s Rotterdam, Hamburg, Barcelona & Singapore MR diesel premia. (Sparta Live Curves)

European premia have been on a general upward trend, whereas those in Singapore have been on a general downward trend.

Consequently, AG marginal cargoes now gain better margins moving to the MED rather than to Singapore, with NWE nearing parity with Singapore.

Additionally, AG/WCI arbitrages currently land better into Singapore than those from South Korea, suggesting we should expect reduced arb arrivals into Singapore moving forward.

This shift in the market dynamics supports our continued bullish view on Singapore diesel pricing into the medium term.


July’s ICE GO spread and crack. (Sparta Live Curves)

As we discussed in last week’s commentary, “these factors [the soon to open USGC TA arb] are expected to place a ceiling on European diesel pricing in the medium term.”

Over the past week, we have witnessed a reduction in ICE GO spreads and a flattening of the ICE GO crack.


July’s HOGO swap and Houston to Rotterdam MR freight rate. (Sparta Live Curves)

Despite continuously large US crude runs (these have reduced somewhat in recent weeks) and a narrowing HOGO, increasing USGC MR freight rates continue to close the TA arb to both NWE and the MED.

Any easing in the freight outlook is likely to open this arb in the short to medium term.

As discussed above, we should see increased arrivals from the AG and Red Sea into July and August.

Additionally, several players have diesel VLCCs pointed at Europe from Singapore and AG regions for late July/August arrival.

Furthermore, we have started to witness increased production and export of distillates from Dangote in recent weeks.

Given these factors, we maintain a bearish view on European diesel pricing moving forward. Monitoring the USGC arb to Europe will be vital in determining the timing here.


July’s NWE jet CIF differential and spread. (Sparta Live Curves)

As discussed in last week’s commentary, “Nevertheless, the widening of the Singapore regrade over the past week has started to reopen the jet arbitrages from AG/WCI to Europe, which is likely to cap jet pricing in the medium term.” Consequently, we have witnessed both NWE jet diffs and spreads come off this week.

Due in large part to the widening of the Singapore regrade, Far Eastern jet arbitrages have joined those of AG/WCI in being open to Europe for parts of the past week.


July’s Singapore regrade. (Sparta Historical Forwards)

As such, we should expect further pressure on jet diffs and spreads in the coming weeks. A view that is further supported by current US jet yields.


US jet yield on total feed (EIA data via Sparta)

As discussed in last week’s commentary, “the persistent high crude runs and the wide USGC diesel differential…this dynamic underscores the bearish pricing trend that is likely to prevail in the US diesel market through the coming months.”

Indeed, HO spreads have exhibited losses, whilst the crack has found somewhat of a ceiling.


US diesel stocks (EIA data via Sparta)

US crude runs and diesel stocks continue to follow an upward trajectory, however, we have witnessed the first draws in US diesel stocks since April.

It will be crucial to monitor potential disruptions from hurricanes, floods, and heat issues as we progress into summer.

The US diesel market faces additional pressures, as demand from Latin America is expected to decline.

This is largely due to the previously mentioned high USGC MR freights, which make it more challenging for US diesel to compete with AG, WCI, and South Korean diesel arbitrages into the region.

Given these factors, we maintain our bearish view on US diesel pricing into the medium term.

James Noel-Beswick is Commodity Owner for Sparta. Before joining Sparta, James worked as an analyst for likes of BP and Shell, and leads our continued development of the distillate product vertical.

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