HOGO dips, E/W capped on China
‘- Hou-Rotterdam diesel MR arb has been cracked open with May HOGO back to low single digits. It is broader risk-on in crude for now, with Brent flat and spreads now reflecting more appetite to price this huge disruption and potentially ceding less power to US administration efforts to keep prices down. But May/June ICE GO spreads are actually down from the +$100/mt level we started the week at which means HOGO is reflecting relative US weakness. This doesn’t really chime with the inventory picture in PADD-3 where levels are quite low. PADD-1 stocks don’t look dramatic.
– HOGO weakness is also mirrored by extremely wide TI/Brent spreads again which of course reflects the rally in TD25, but both can be an implicit message relating to renewed chatter about potential US export bans or limits of some sort. Timing this will not really be tradable (for the majority), but an attempt to curb US domestic product prices would cause double trouble for European and Asian product pricing.
– Hou-Singapore is still very closed for now and Sikka barrels point East. My base case here has been that Asia will need to drag in US barrels and for the E/W to reflect that need. But growing expectations that Chinese distillate exports are set to ramp up in May could make a substantial difference to this market. What’s more, Asian runs (ex-China) might surprise slightly to the upside given the efforts at crude procurement, draws on SPR. May sing regrade is also back down to $6/b with Chinese export expectations in May also a likely driver.
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