Asia urgency accelerates even if paper markets are choppy

Commentary summary:

• But urgency to get diesel East remains in place

• Sing regrade now negative; perhaps demand destruction is already being felt

It’s still nigh untradable on certain aspects of the market. Sing 10 E/W corrected massively as risk-off emerged earlier this week generally on the Iran situation. But April E/W is back up $20/mt at time of writing in early trading today. Cracks, timespreads globally are very volatile and subject to headlines of course.

We noticed this week that a large spike in Singapore sales prices has blown the LR2 diesel arb from Houston to Sing wide open and this route now commands a far better margin for the USG loaders than e.g. into Rotterdam.

This still makes sense at least to me given the likely scale of Asian run cuts ahead. Australia is the focal point in the headlines just now given its status as a huge (and rich) importer that is already seeing difficulties at the pump, if seemingly more due to panic buying for now.

The lowering of Australia’s diesel flashpoint effectively allows more jet into the diesel pool, which is bad for the kero balance of course but helps perhaps defend the more politically (and economically) sensitive diesel market at least for now.

Regrades in Singapore currently want to push more jet into diesel, somewhat surprisingly, even if you “account” for the fact that airlines are cutting flights.

So Sing diesel prices are pulling global barrels East (alongside Yanbu, Sikka barrels), but this doesn’t mean we are not going to see the occasional correction in diesel E/W or the occasional need for Europe to spike higher to fight for these “marginal” cargoes out of the US.

And indeed news that oil loadings out of Primorsk and Ust-Luga are currently at risk due to drone attacks would put more pressure on Atlantic balances given typical Russian flows to the likes of Brazil. Here it is good to note that the margin out of Yanbu into Aliaga on an LR1 is at least firmly positive again having been deeply negative over the last few days.

(Houston diesel margins strong to SE Asia)

On the US side, we’d be surprised if US stocks didn’t soon start to draw quickly, as there is simply a lot more demand for these barrels. You also have a workable arb on non-Jones Act from Houston into New York just now, at least for May load, helped by strong Nymex HO cracks/spreads (plus weak ULSD 10 diff).

However, it is also true that US runs are doing their bit just now to keep product markets at least slightly better supplied; intake is now up 900 KBD y-o-y. Risk of unplanned outages may grow over time as every plant runs flat out. HOGO still generally seems a sell for now but maybe the timing isn’t right if European runs are going super-max while extreme freight and difficulty understanding fair value spreads generally speaking just now makes life difficult.

Jet E/W is swinging very wildly indeed but remains deeply negative down the curve. Fact is you have wildly open arb margins from Sikka into East and West. You have open Yanbu margins into Europe. You have open Houston jet margins into Europe but not to Singapore just now.

There isn’t enough jet to go round and airlines are already cutting flights. It doesn’t seem particularly easy to make strong E/W calls of course.

At some point it might be worth buying a weak regrade (e.g. in Singapore just now) as we must assume that more efforts will be made to supply diesel at all costs (with spec changes perhaps) while the impact of runs cuts is probably still also yet to materialise in inventory.