June calm, July squeeze in the making?

• After the initial E/W rally and the strong arbitrage incentive to Asia seen during the early weeks of the conflict, the market keeps trading lower, both in paper and physical. The correction in timespreads and cracks we’ve been seeing since the last week of April has also been joined by sharp drops in Asian cash diffs, settling in the +70s for 1H June arrivals.
• The “modest” $5/mt rebound in the June E/W contract since late April is not significant enough at this stage to suggest a meaningful reopening of the arb from Europe or the US to Asia in the short term.
• Chinese imports falling and petrochemical demand destruction East of Suez are currently weighing on any potential market rebound.
• Nevertheless, gasoline blending demand is ramping up into the summer driving season, tightening the call on blendstocks across the Atlantic Basin and setting the stage for wider gas-nap spreads, with blending-grade naphtha likely to see the strongest price upside as gasoline pulls away from naphtha on relative strength.
• While June deliveries may remain relatively calm despite the escalating tensions in the Strait of Hormuz, the setup for July onwards looks tighter. AG supply remains structurally constrained, Russian volumes continue to decline, and with the Eastern arb remains closed, Asia will increasingly need to lean on Western barrels. This combination could drive a renewed rebound in the E/W and a recovery in Asian premiums as buyers move to secure July cargoes from West of Suez.

About the Author
Jorge is Sparta’s Commodity Owner for gasoline and light ends. He began his career as a financial analyst at BBVA before spending four years as a naphtha analyst at Repsol. His market analysis is cited by Reuters, Bloomberg, and Financial Times.
Connect: https://www.linkedin.com/in/jorge-molinero-sanz-459a6513b/

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