Iran Update – 5th May 12:00 CET – Max price pain coming in late Q2

• Hopes for diplomacy, if any were ever really there, seem to be fading by the day. Fujairah is at risk again given yesterday’s attack; a major outage would see roughly another 2 MBD crude lost from an already stretched system. Ship-owners won’t be encouraged by attacks on tankers either.
• Replacement crude from the West continues to be mostly Americas origin, with the WTI May load schedule to Asia already another step higher vs April. WTI’s competitiveness (versus say European light sweets) is driven by wide TI/Brent and a TD22 FFA that has now sunk to pre-war levels. VLCC avails in the USG are very ample.
• In the OECD, we would normally expect some 800 KBD of demand upside to light distillates between May and August, and another 500 KBD on middle distillates, most of which occurs in the West. E/W on distillate and gasoline reflect this rather than Asia’s particular medium-term exposure to Hormuz crude loss. That plus the raft of West-East product arb earlier this quarter, and the incremental improvement in short-term supplies, relative to worst case, out of North Asia (both on the runs side and product exports).
• To a degree relative gasoline pricing is doing as we expected. The approach to summer is now underway with US gasoline inventories already looking rather low. RBOB has indeed managed to rally enough to open up gasoline arbs from ARA to NYH for the first time in quite a while. The US for now looks willing to pay up to keep more volume and ARA is also benefitting from this via export margins into LatAm destinations. EBOB/ULSD spreads for the summer have shifted a solid $60/tonne m-o-m in favour of gasoline.

• Timing wise, as we mentioned last week, we probably still need to wait a few weeks (perhaps June-July) before maximum pain in both physical crude and products. That reflects a somewhat realistic timeline before we can start to talk about commercial inventory minimums, particularly in Eastern crude (ex-China), as well as the ramping up of seasonal demand.
• But it does seem that incrementally we are already witnessing more of a battle between products. Jet supply in the West is a good example; higher yields in the US and presumably Europe are plugging some of the import gap left by Hormuz and have cooled regrades for now. Particularly in Europe, this yield gain will come at the loss of diesel (particularly with Europe now relatively short of resid) and perhaps heavy naphtha too, with important impacts for both in terms of expected inventory level through the summer.

About the Author
Neil is a senior oil market analyst specialising in crude oil, refined products, and biofuels, with particular depth in refining economics, fundamental strategy and price modelling. He has held analytical roles at OilX and JBC Energy, and his market intelligence is regularly cited by Reuters, Bloomberg, and the Wall Street Journal.
Connect: https://www.linkedin.com/in/neilcrosbyuk/ https://x.com/NGCanalyst

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