Diesel continues to be very flat; closed arbs, maintenance in Asia and poor demand, whilst jet gains despite open arbs

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

This week, Singapore diesel spreads and cracks have remained largely stable, with a slight decline observed. 

Singapore. (Sparta Global ARBS – Pricing Centre)

Currently, South Korean diesel arbitrages are the most cost-effective route into Singapore, facing some immediate competition from West Coast India (WCI) and Arabian Gulf (AG) LR2 arbitrages. 

Jubail LR2s. . (Sparta Global ARBS – ARBs Comparison)

Notably, the GO East-West spread has widened slightly, so whilst WCI cargoes continue to point largely East, AG arbitrages are “turning” largely back westward due to better margins from the Mediterranean (and East Africa), as opposed to Singapore. 

The Singapore diesel market presents a complex outlook. Whilst turnaround activity in the region is decreasing, reduced crude runs and exports from India, China, and Russia add layers of uncertainty.

Despite these conflicting elements, the overall perspective remains neutral to bullish. Taking into account the ongoing reductions in exports and the shifting arbitrage dynamics, we foresee potential stability or improvement in Singapore diesel pricing moving forward.

Most major arbitrages to Northwest Europe and the Mediterranean remain closed, except for those from the Red Sea and East Coast Canada.

AG and WCI arbitrages are directed eastwards rather than towards Northwest Europe, although AG arbitrages are more cost-effective when directed to the Mediterranean rather than Singapore. Consequently, Europe is expected to see reduced diesel imports.

June’s HOGO Swap and Houston to Rotterdam MR WS rate. (Sparta Live Curves)

The US Gulf Coast transatlantic arbitrage remains closed despite reductions in Houston to Rotterdam MR freight rates, due to the recent widening of the HOGO swap.

Given these conditions, we maintain a neutral to bullish outlook on European diesel pricing in the short to medium term.

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

In the European jet fuel market, Northwest European differentials have continued their recovery, with the Northwest European jet spread moving very close to backwardation. 

Rotterdam. (Sparta Global ARBS – Pricing Centre)

However, this newfound strength has opened jet fuel arbitrages from the AG and WCI into Europe, despite the narrowing of the Singapore regrade.

This means that, whilst the market shows signs of recovery, there is likely to be a ceiling on jet fuel prices in the medium term due to these additional imports.

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

HO cracks and spreads have largely followed the stabilising trend set by Singapore and Europe, but with slight gains over the past week.  

Americas. . (Sparta Global ARBS – ARBs Comparison) 

Despite the closed arbitrage to Europe, the USGC remains the most cost-effective arb for imports into Latin America (both East and West Coasts), indicating a continued rise in exports to these regions.  

US crude runs & diesel demand (EIA via Sparta)  

US crude runs are on the rise, but so is domestic diesel demand, making it crucial to monitor these exports closely.

US diesel exports (EIA via Sparta)

The impact of recent tornadoes and storms in the Houston area have not yet been reflected in the data; we should expect to see this in next week’s EIA numbers. 

However, with US crude runs continuing at a strong pace, relatively poor US diesel demand, and the USGC maintenance period not scheduled until October, it is challenging to adopt anything but a neutral to bearish outlook on US diesel pricing in the near term.

If we see continuingly strong crude runs and tepid demand, it suggests that diesel prices may struggle to find upward momentum in the weeks ahead.