Bullish distillate short term, but returning runs after maintenance and new supply should temper this; run cuts in East Asia, in particular, continue to be important to monitor

Commentary summary:

– USGC TA arbs largely closed whilst AG/WCI arbs point firmly East.

– HOGOs widens whilst the GO E/W narrows; both should limit diesel flows to Europe. However, new refining additions and recovering refining margins are an issue here.

– HO spreads and Singapore spreads & cracks gain whilst ICE GO continues to struggle.

– Reduced Chinese exports (on the back of a lack of export economics) and refining margins should result in further run cuts. When we start to see this reverse due to low internal diesel stocks will be important to monitor.

– There is an argument for a moderately bullish view in the short term but improving margins and new & returning supply, particularly in the West, should temper this.

The Singapore diesel crack and spread have been rising steadily since the start of October, with several key factors suggesting that this trend will likely persist in the short to medium term.

Chinese diesel exports remained low throughout September and are expected to continue at reduced levels through October and early November, as a result of poor export margins.

This has boosted North Asian diesel premia, particularly in South Korea and Japan.

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.