Jet and diesel both exhibit strength but should find a ceiling with the opening of arbs in the coming weeks

19 June 2024 Time to read:  minutes


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

Over the past week, both Singapore diesel cracks and spreads have seen gains, a surprising development given our previous commentary, which suggested a bearish outlook due to persistent flows from the AG and WCI.  


Singapore diesel/middle distillate stocks (Enterprise Singapore via Sparta)

Contrary to our expectations, Singapore stock data from June 12 indicated that no diesel cargoes arrived from the Arabian Gulf (AG) and West Coast India (WCI) last week, contributing to a four-month low in middle distillate stocks. 


July’s Singapore 92 crack. (Sparta Historical Forwards)

This situation, combined with the continuing decline in Asian gasoline cracks, supports the discussions and signs of run cuts currently taking place in East Asia.

These run cuts are a critical factor in the tightening supply environment, potentially bolstering diesel prices. 

Despite the widening of the GO E/W spread, AG and WCI diesel arbitrage opportunities continue to point East rather than towards Northwest Europe (NWE).

However, outages at the Star refinery and reduced supply from West and Central Mediterranean refineries, possibly due to heat issues, have created a pocket of strength in the Mediterranean market, evidenced by rising premia and differentials. 


July’s Mediterranean diesel differential & MR premia and NWE diesel differentia. (Sparta Live Curves)

Adding to this, our Senior Pricing Analyst Carrie Ho reports that regional demand remains healthy with robust buying from South and East Africa. This strong demand further underpins the market dynamics favouring a tighter supply outlook. 

 Considering these factors, we maintain a neutral to bullish view on Singapore diesel pricing moving forward.

The rationale lies in the ongoing run cuts and the reduction in stocks, which are likely to support prices in the near term. As long as these supply constraints persist, the outlook for Singapore diesel remains cautiously optimistic. 


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

As discussed in last week’s commentary, “This dynamic suggests that the bullish trend in European diesel prices is likely to persist until the USGC TA arbitrage reopens.”

Over the previous week, ICE GO spreads and cracks have exhibited substantial gains. Marginal barrels from the AG and WCI were expected to head East, but current ship-tracking data does not reflect a significant decrease in flows from AG/WCI to Europe. 

 Despite briefly opening last week, the US Gulf Coast (USGC) Trans-Atlantic (TA) arbitrage to Europe remains closed due to high USGC MR freight rates.

However, this situation is anticipated to change soon, given rising US and USGC diesel stocks and the continued widening of the HOGO and USGC diesel differential.  


US PADD 3 diesel stocks (EIA data via Sparta)

We have already witnessed an early sign of this with the opening of the US Atlantic Coast (USAC) TA arb to Europe over the past week. These factors are expected to place a ceiling on European diesel pricing in the medium term. 


July’s NWE Jet CIF diff and spread. (Sparta Live Curves)

In parallel, as mentioned in last week’s commentary, “All Asian-origin jet arbitrages, except those from the Red Sea, are currently closed to Europe.

This closure has already resulted in European jet differentials and spreads finding a floor.” Consequently, European jet differentials and spreads have gained over the past week.  


July’s Singapore regrade. (Sparta Historical Forwards)

Nevertheless, the widening of the Singapore regrade over the past week has started to reopen the jet arbitrages from AG/WCI to Europe, which is likely to cap jet pricing in the medium term. 


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

As discussed in last week’s commentary, “the continued strength in crude runs, as evidenced by the persistent width of the USGC diesel differential, suggests a bearish outlook for US diesel pricing in the medium term.”

This week, HO spreads and cracks have found a ceiling.  


US crude runs (EIA data via Sparta) and USGC diesel diff


US crude runs (EIA data via Sparta) and USGC diesel diff

With US crude runs remaining consistently high and unlikely to abate until turnarounds resume in late September, matched by the width of the USGC diesel differential, we should expect significant USGC TA arb flows over the summer, barring potential refinery heat issues and/or hurricanes. 

The US Gulf Coast continues to hold its position as the most advantageous non-Russian diesel arbitrage into South America.

Consequently, we should see an increased pull from this region. However, despite this demand, the outlook for US diesel pricing remains bearish into the medium term due to the aforementioned factors. 

 The persistent high crude runs and the wide USGC diesel differential indicate that supply will remain robust, outweighing the Latin American demand increases.

This dynamic underscores the bearish pricing trend that is likely to prevail in the US diesel market through the coming months. 


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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