Europe’s steady distillate recovery to continue in advance of a potentially disrupted summer of refining in the western hemisphere

Various measures of gasoil strength in Europe have gained further ground over the past few weeks, in what can be described as a broad if for now somewhat limited strengthening in the physical market.

Some refinery disruptions in Europe and French strikes also underpinning the more bullish trend.

NWE cracks, Sales prices, and barge diffs have recovered losse. (Sparta Live Curves)

On the arb front, global swing exporters, namely WCI and USGC, continue to point away from Europe.

For WCI, the relative advantage of sending volumes East is, however, gradually being eroded amid a widening E/W spread and higher sales prices in Europe.

Houston and Sikka arbs to Europe remain closed, but Sikka econs are generally improve. (Sparta Global ARBS – ARBs Dashboard)

It would only take a small further divergence between Singapore and NWE pricing to start to push marginal volumes West again, and physical FOB premia in the Far East continue to trend weakly, suggesting ample supplies and no let-up in the relative pressure currently being exerted on Singapore from major local exporters.

The E/W spread has a good chance to continue widening in the short-term.

South Korea FOB prices are showing no let-up in pressur. (Sparta Live Curves)

Relative pricing is working to try to price NWE back into WCI origin. (Sparta Global ARBS – ARBs Dashboard)

Nevertheless, from the European perspective, it will – as usual – take some weeks before physical arrivals could show signs of changing.

That means imports into the region will largely be dictated by Middle Eastern supplies and could even drop m-o-m in July after overall rather elevated June levels in spite of closed arbs.

From the USGC perspective, strong freight rates have been one of the main factors keeping the arb to NWE closed for some time now, negating a narrow HOGO.

There is a chance that the HOGO can remain narrow on ample PADD 1 stocks, but USGC diffs themselves continue to strengthen on a steady if gradual reduction in PADD 3 run rates that has already started to emerge.

The HOGO gained a little ground this week but remains narrow. (Sparta Live Curves)

Summer heat issues may already be playing a role here. What is more, the emerge of such an early and powerful storm in the Caribbean again underpins the notion that this year’s season will be hyperactive, with significant disruptions possible in the USGC.

This is ultimately impossible to time, but broader short-term sentiment may well be brightening in anticipation. US weekly diesel inventory movements have definitely turned a corner and are even slightly below seasonal levels over the last few weeks.

A corner has been turned in US diesel stock changes. (Source: EIA)

Neil Crosby is an experienced energy market and commodity analyst, specialising in crude oil, oil products, biofuels, and carbon. With roles at OilX and JBC Energy, he has extensive expertise in global oil industry analysis, forecasting tools, bespoke research, and client communication. His focus on refining and petrochemicals underscores his specialisation.

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