Asia Pacific focuses on Jet, Europe Winter Specs whilst US MR freights continue to roof

West Coast India (WCI) diesel arbs have emerged as the primary cost-effective option for Singapore, stretching all the way until Q3 2024, although they still point westward for Dec & Jan loaders.

This resurgence owes much to the recent rise in North Asia freights, leaving our shipbroking contacts perplexed by a sudden 14-point spike and describing it as a “panic move” within an otherwise relatively inactive market. They, and we, expect these freights to come off shortly. 

Singapore’s diesel sales prices nosedived to -$0.25 /bbl versus MOPS 10ppm, their lowest since mid-May 2023, aligning with similar downturns in cracks and spreads. 

Reflecting the plunging sales prices, Singapore’s middle distillate stocks remain at a near two-year high, paralleled by December’s regrade surging to +$2.0 /bbl, signalling a shift in Asia Pacific’s focus towards jet fuel and anticipated yield switching.  

As such, Asian jet arbs to Europe are closed by at least $10/mt until Q3-2024 (NWE and MED jet premia having moved to their lowest levels since August), as Asia holds onto its jet barrels for Japanese and US West Coast demands. 

Amidst this market flux, concerns loom over the sustainability of the regrade’s ascent, particularly considering the direction of travel of Japan’s surplus kerosene stocks as we head into a forecasted warm North Asian Q1 2024; this should spark discussions around a potential bear regrade trade in the making. 

Open diesel arbs into Europe remain confined at the very prompt for December and early January arrivals; movements from the AG, WCI, Red Sea, and some MRs and LR1s from the US. WCI is poised for its largest arbs arrival into Europe for some years in December, due to their advantageous cold properties.  

According to our broking contacts, AG barrels are in many cases being co-loaded with Kuwait parcels, which helps with the adjustment to comply with German cold flow constraints, further helped by blending with US arrivals to further meet the cold properties.

(With German specification diesel cargoes are currently pricing at a premium of approximately $5 /mt versus French/UK specification ones). Despite this, AG and WCI diesel loaders point Eastward from February 2024 onwards. 

The prevailing openness of these arbs into Europe seems limited to the immediate term, largely dictated by the necessity to meet winter specifications. However, this scenario is likely to give way to a declining trend in spreads and cracks as Q1 2024 unfolds.

The ongoing downward trajectory in European sales prices since November, coupled with the specific winter spec demands that will end towards the end of Q1 2024, seems to support the short-term nature of European strength at the very front. 

In the Americas, the focal point remains the remarkable escalation of US Gulf Coast (USGC) MR freights, these, for example, reaching their peak levels to Santos, Brazil since March 2023, registering at $91.39 /mt.  

Consequently, USGC diesel arbs are being outmatched in terms of cost-effectiveness by Asian-origin barrels in both East Coast and West Coast South America. This competition is poised to intensify given the substantial Russian diesel export plan to Brazil scheduled for December.  

Concurrently, the USGC diesel differential continues its downward trajectory, strategically pricing down to stimulate exports, albeit finding a temporary respite due to European demand for their specific winter cold properties.

As the USGC struggles to find outlets for its diesel, we should expect this widening pressure on diffs to continue into Q1 2024. 

Foreseeably, vessels are expected to ballast to the USGC, capitalizing on these lucrative opportunities, potentially empowering the USGC to reclaim its footing in traditional regions of Latin America in the medium term. 

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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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