Extreme prices persist

Commentary summary:

• SG 10 E/W is $50/mt in April but firmly negative down the curve, Sikka barrels point East way out to Q3.

• European jet pricing has reached unprecedented levels, yet even current values fail to pull West Coast Indian barrels away from Singapore.

• Our USG diesel arbs to Singapore are closed but actually the margin is “better” than for LRs to Rotterdam. Probably those arbs have a chance to trend more open at times, the longer this crisis persists.

ICE GO front spreads remain near a whopping $120/mt. I guess few are comfortable being long at that level but the fact is that we are increasingly needing to price the biggest disruption to refined crude and product markets practically in all of oil history.

Structure in paper, freight, and premiums is creating havoc. Major swing barrels, including Red Sea loaders at Yanbu, currently favour Asian over European destinations. And even though SG 10 E/W is $50/mt in April but firmly negative down the curve, Sikka barrels point East way out to Q3.

Both deferred E/W and deferred cracks at $25-30/bbl appear potentially undervalued nonetheless, reflecting lingering consensus for a short conflict. Prompt cracks across the board must remain elevated to maintain the structural incentive for maximum refinery utilization and probably also for demand destruction.

(USG arb diesel arb to Sing and Rotterdam are closed, but Sing is “less bad”)

What’s more, our USG diesel arbs to Singapore are closed but actually “better” than for LRs to Rotterdam.

Probably those arbs have a chance to trend more open at times, the longer this crisis persists, and indeed there are already distillates fixtures from USG to Australia on the books.

Not that USG becomes the main supplier as those barrels are needed in Europe clearly. But occasionally as the origin of last resort for short periods.

Meanwhile persistent tightness in PADD 1 and 2 stocks alongside this crisis are producing outstanding relative HO strength.

HOGO has escalated as the US needs to “protect” PADD 1 and USWC supply, though a bearish correction might be expected at some point as ICE GO spreads probably need to help open up US Gulf barrels toward Europe.

A key tail-risk (if we can talk tail risks or just risks) is that the US enacts one or both of Jones Act relief and US export limits.

Meanwhile, the Jet East/West is deeply negative, indicating that Europe is the primary centre of global jet fuel distress at least for now. Not that a +$10/bbl April regrade in Singapore is weak, but the equivalent in Europe is around $400/mt.

European jet pricing has reached unprecedented levels, yet even current values fail to pull West Coast Indian barrels away from Singapore.

While US Gulf arbs to Northwest Europe are nearing open for May arrivals, limited export-ready Jet A1 availability in the USG remains a significant bottleneck.

Simultaneously, US West Coast pricing is surging due to operational friction at El Segundo and the impending Benicia closure, and of course the Asian jet crisis that is also brewing.

Prices have not yet reached levels sufficient to pull USG barrels through the Panama Canal against competing global demand, suggesting further upside is still possible.