Signal Brief: Iran Update Part 2- 6th Mar 1200 CET – Products Round-Up

Cross-Barrel Signal Brief: Iran Update Part 2- 6th Mar 1200 CET – Products Round-Up

• Jet fuel faces a structural supply ceiling, not just a demand shock. With roughly 20% of global waterborne jet disrupted, lower refinery crude runs in the East of Suez region are compressing straight-run jet output at the same time flight re-routes away from the Gulf are intensifying demand on Asian supply centres. Chinese jet/kero exports – typically around 150kbd – are also rumoured to be under threat from government instructions to curb exports. With no easy fix (atmospheric distillation cuts already near maximum and desulphurisation capacity equally stretched) real supply outages are to be reckoned with in the coming days/weeks.

• The jet East/West arb is swinging wildly, raising questions about what is actually moving (physically). After initially tracking diesel sentiment westward, the physical reality of Asian tightness pulled focus east — but the arb has now swung sharply back toward the West, with Sg Kero buckling and NWE Jet CIF continuing higher. The speed and scale of these reversals, in a market with collapsing futures liquidity, suggests price discovery is deeply impaired and physical flows may not be responding as the differential implies.

• India is now the swing supplier for diesel, but its pivot East leaves Europe exposed. Reliance vessels loaded with diesel and jet that had been heading west are turning back toward Asia, and Indian barrels more broadly are finding homes in the East rather than Europe — setting up a meaningful resupply challenge for European markets and raising the question of whether a suspension of the molecule ban becomes necessary.

• The USG-Singapore diesel arb is shut, and the transatlantic route is barely alive. Houston-Singapore is closed by approximately $20/mt, while strong pipeline bids are keeping the USGC-Rotterdam arb only marginally workable — more viable on an LR, though available tonnage is likely to be absorbed quickly by competing clean product demand.

• ARA mogas is beginning to move East, with the USGC even better positioned to supply. Early arbitrage flows from ARA toward East and West Africa are already visible, but the USGC offers cheaper barrels and more readily available freight — LRs are likely to face increasing demand out of the Gulf Coast to service both gasoline and wider clean product flows heading east.

• Naphtha’s European and USGC-to-East arbs are more constrained than headline spreads suggest. Freight costs on the Cape route have risen sharply and backwardation in MOPJ is eroding the economics of long-haul European cargoes, having already pulled the E/W back from its peak. The USGC remains the best-placed alternative supplier, but quality and volume limitations mean Far Eastern crackers will ultimately need to reduce run rates.

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