Are high sulphur cracks in for a crude awakening?

Since my commentary on the complacency in forward cracks last week, Sing 0.5 cracks have firmed up across Q2 and Q3, though admittedly still not quite as strong as what I would have expected. High sulphur cracks, on the other hand, remain rather muted (relative to the situation we are in). In fact, week on week, 380 cracks softened by about $2/bbl across the curve.

Again, 380 cracks are pretty much at the same levels we saw last summer. It’s time to take stock of some of the differences year on year (just a few angles here).

Muted 380 cracks come with a growing sense among many in the East that there’s sufficient non-AG volume to make up for the short fall. Russian exports, despite the constant attacks on infrastructure, remain quite robust so far. Year-on-year, January to March 2026 export volumes pretty much match the same period in 2025. And as I mentioned before, the de-sanctioning of Russian molecules has allowed more volume to downgrade more aggressively into the bunker pool in the East – diffs have continued to weaken accordingly.

Blend component diffs seem to reflect the same sentiment. WC India 3.8% last traded at a double digit discount to Sing 380 (a reminder that dirty MR freight has barely budged compared to the larger sizes) – definitely stronger than pre-conflict levels but not suggesting any desperation at all here.

But as we talk about Russian HSSR volume, we should not forget the intense competition coming from the feedstock pool for those molecules now. India and China are both taking them aggressively. Last year, it was one alternative among many and something that India could (and did for a short while) eject from their system. It is not the same this year because a good chunk of medium-heavy sour crude supply is now completely off market so this becomes a must have and they will pay up for it. There is not enough Russian resid for everyone that wants it.

Not forgetting the Venz volume of course. High sulphur resid would have soared to greater heights if it were not for Venz anchoring part of the complex in the Atlantic Basin. But on a global level that is nowhere near enough to make up for the resid lost through the 10Mbd of medium-heavy sour crude. Just multiply that 10Mbd by say 3% and you’ll already have almost 1.5Mtpm of high sulphur resid that has to be replaced. Also, technically speaking, on a global basis, Venz volume was always there to a good extent previously, just for a different set of takers.

In addition, we all saw the news on Iraq exporting some 650kt per MONTH for Q2 through Syrian ports on tanker trucks. I’m not saying this is not possible – trading houses have pulled logistical feats before so they are no stranger to this but let’s take a step back and look at the logistics. Each tanker truck can carry around 25MT. The journey from Iraq to Baniyas or Tartus takes about 2 days for an average trucker or say 4 days for a round trip. Add in a bit of rest and say each truck can make 7 trips a month. 650ktpm requires almost 4000 tanker trucks and we’re not including those needed for crude exports. Traders will figure out the logistics at the right price of course but that is still a tall order. Now even assuming the full 650ktpm on trucks will be realized, we are still at least 500-600ktpm short of the usual legit Iraqi molecules in market. (On the brighter side, that’s more diesel demand from the trucks to help clear some tank tops!)

On another note, May Sing FOGO is hovering around $500 while Jun is just below $400. From our blender calculations, there is a $80 and $60/bbl gap before 10ppm can break even into high sulphur blending for May and Jun respectively at these levels. Of course, it’s not actually 10ppm that goes there but the other gasoil range molecules that command slightly softer diffs. The point remains that diesel at these levels will pull away significant volume of the usual cutterstock from high sulphur. My gut feel is that this will start to manifest in 380 blending soon, and even more so for 180. Having said that, I should have mentioned in the earlier paragraph that Russian HSSR does tend to stay below 3.5% and that’s definitely something to note.

Regional balances are determined by regional supply, regional demand and inter-regional flows. Re-direction of inter-regional flows is the proper solver when overall supply and demand remain relatively intact from a global perspective. But it’s a different story when a massive chunk of crude at the very heart of the global complex is shut in. We will all feel more of this in the coming weeks.