Arb signals into Europe still not consistently bearish

Commentary summary:

• On average swing barrel econs into Europe have not proven sustainably open

• Wait for more outsized builds in the US to refill stocks from very low levels before expecting HOGO weakness.

• The Eastern distillate market looks to be tightening up which once again sees swing barrels from Sikka point away from Europe.

As a team we have started to think more and more about shorting distillate, specifically Jul/Aug ICE GO spreads.

I think the jury is still out for now with the timing still unclear. June ICE expiry was very strong indeed and probably representative of the fact that European runs had issues (e.g. Spain/Portugal) and with swing arbs into the region consistently poor over the last weeks.

Looking ahead to early Q3, on the one hand we clearly have rising (Western) runs, basis a stronger crude market, and clearly very strong weekly runs data in the US.

US distillate stocks rose substantially in the latest data and estimates point to another build in the data due out today.

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.