Paper complex blinks on de-escalation but the Asian physical explodes on tighter Asian balance

• US and Iran paused attacks after 13 days, seeking an agreement on Hormuz in a bid to jumpstart peace talks in Oman. Oil prices extended their decline on the pause, driving a sharp pullback across the light ends global paper complex.

• But the physical market is still screaming, with MED delivered premium ripped to an extraordinary level even as the FOB premiums rise and E/W came off hard. We’re seeing new record premiums for the last two months and AG loadings remain frozen, meaning the physical market has not confirmed any of the relief the paper is pricing.

• MOPJ Aug/Sep timespread has corrected by more than $20/mt since the ceasefire, same as E/W August contract. But time structures remain elevated and are flat to higher on the week, still pricing a substantial supply premium. The pullback reflects the front of the curve repricing a fragile peace track rather than any actual improvement in AG supply.

• The pause may be short-lived since both chokepoints are still compromised. The flow of vessels through Hormuz remains very low while Bab el-Mandeb flows are likewise very restricted, and the extent of damage to West Coast Saudi infrastructure remains a question. For naphtha, both AG export corridors remain effectively shut, and the structural deficit persists regardless of the diplomatic headlines. European alternatives may help to alleviate the Asian short balance, raising the exports through the Cape of Good Hope.

• The question now remains whether the Iran-Oman Hormuz talks will produce anything real, and critically whether the physical follows the paper down or the paper re-rallies to meet a physical market that never de-escalated. Until AG barrels actually clear the straits, the risk stays skewed to the upside.

About the Author
Jorge Molinero | Commodity Owner, Light Ends & Gasoline, Sparta Commodities
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.
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