HOGO: Yanbu and Sikka shut as TC14 hinders USGC relief

Trade update: The spread has compressed around 4.2 cpg w-o-w. My bias remains toward further compression into 27 cpg, with 25 cpg possible.

• Europe’s supply problem has worsened faster from the arb’s perspective, and that remains the core reason to stay biased lower. Houston MR has improved in the very prompt window, briefly turning positive around +$1.7/mt to +$2.0/mt for mid-August delivery, but that support fades quickly. It turns negative again by late August, weakens to around -$5/mt to -$7/mt in early September, and falls toward -$15/mt by mid-September. Houston LR2 remains negative throughout.
• Yanbu has deteriorated sharply. The route that looked like Europe’s clean relief valve last week is now negative across almost the full screen, mostly around -$25/mt to -$44/mt through August and early September, only improving to around -$8/mt to -$9/mt late September.
• Sikka is still not helping either. Sikka-to-Rotterdam via the Cape remains deeply negative, around -$9/bbl to -$10/bbl across August loading windows and still around -$6.4/bbl through most of September. Middle distillate exports from India fell 10.2% m/m to 1.75 million tonnes in June. That matters because Indian barrels are one of the flexible sources the world needs, especially Europe, when Russia, AG and USGC flows are constrained. Arbs are one thing, but if supply itself is limited, the overall balance remains tighter.
• Red Sea risk makes Yanbu less straightforward. Some barrels previously heading to East Africa could be redirected north into Europe if Bab el-Mandeb becomes harder to transit, but that would only offer partial relief. East Africa would still need replacement supply from other origins like AG/India, while Yanbu-to-Rotterdam economics have already weakened and route reliability is now less certain.
• TC14 remains one of the main blocks on the USGC-to-Europe arb. Freight has rebounded to around $60.86/mt, making Houston-to-Rotterdam cargoes harder to clear just as the USGC diesel differential has also firmed. The high RVO, with July around 34.9 cpg, should support US diesel export economics, but that support is being overwhelmed by firm HOGO, expensive TC14 freight and a stronger USGC cash differential.
• The US side is loosening at the margin, which adds to the HOGO compression bias. US distillate stocks have built to around 109.6 million barrels, the highest since mid-April, with total inventories up 1.39 mb w-o-w and PADD 3 building 0.85 mb, easing pressure at the key Gulf Coast export hub. There is also a potential second-order pressure from Chinese exports; there are market rumours that total July product outflows may exceed the initial ~2 million tonnes estimate, and with Asia’s July buying cycle largely complete, more barrels are being pushed toward LatAm. That could reduce LatAm’s pull on USGC diesel and leave more barrels competing for export homes. Unless the Houston-to-Rotterdam arb opens cleanly, that is marginally softer for HO and supportive of further HOGO compression.
• Bertha adds a near-term operational wrinkle for the USGC. The storm is tracking near the Louisiana and upper Texas coasts, but is expected to move inland and dissipate by tonight or Friday. That makes it more of a short-lived loading and freight-delay risk than a structural HO bullish factor.
• Russia keeps the Atlantic diesel pool tight. The export ban is easing domestic stress, but it is not yet a return to normal export availability. As the 31 July deadline approaches, the key question is whether the ban is extended or exporters get some relief. Until that is clear, Turkey, Brazil and other buyers still need to compete for non-Russian supply.

About the Author
Abhishek is a Senior Oil Market Analyst at Sparta Commodities, based in Dubai, with a background spanning trading and analytics. Before joining Sparta, he held roles at Litasco, LSEG, and Reliance, where he focused on oil market analysis, spec trading, and broader oil market dynamics.
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