Iran Update – 14th April – 12:00 CET – Fuel crisis can only worsen now

‘- Saudi Arabia is reportedly urging the US to roll back on the blockade, fearing rightfully what Iran might retaliate with (GCC oil infrastructure attacks).

– Diplomacy is for now not bearing fruit; reports suggest there is haranguing over potential (long-term) timelines for a nuclear programme pause that would rather represent something akin to the JCPOA.

– The US naval blockade is ‘in force’ but the logistics remain very doubtful. Iran can sit back and let oil and wider markets become increasingly strained over the coming weeks. Meanwhile, US nationwide average retail diesel prices are approaching $6/gal.

– Houston diesel arbs into Sing, WAF, NWE and Brazil are all open for H2 April and H1 May. US diesel stocks are an obvious source of temporary resupply for Rest of World, and therefore the HOGO can/will maintain these low levels until US inventories dry up. Even NYH-Rott diesel is open for now.

– Expect Asian refinery runs to gradually get lower and lower. Poor long-haul crude arb economics, and only limited ability for SPR to supplement missing AG crude means Asia’s fuel crisis gets progressively worse. This will need to be matched with increasing government action, the negative demand consequences of which simply grow.

– Chinese (as well as other Asian nations) crude imports look to be falling as expected and the onus to protect the Chinese economy will be at the centre of headlines suggesting state-run refiners will get some access to inventory to keep up runs. There appears also to be a focus on shifting yield away from petchem-related product towards road fuels. This is a trend also matched in the US where middle distillate yields (based on admittedly unreliable weekly data) look to be soaring. Heavier slates in the US (VZ, SPR) and huge yield incentives would allow this.

– May E/W gasoline has collapsed this week, but ARA and Houston barrels are still the cheapest sources of supply into EoS shorts, including Australia which is becoming a focus point for the broader fuel worries in the region.

– European refining margins themselves remain poor, too poor in our view. The US can run hard on cheaper local crude; expect strong run levels for a while, but with risk to downside later in the summer on unplanned outages. So again, West to East fuel resupply is likely to continue for some weeks, but it won’t be an endless source of supply and eventually WoS swap pricing will be tested/have to fight against Sing counterparts for the marginal product barrels.