Q1 2027 on both diesel and jet looks more and more like buys

• USGC MR diesel arbs close to Europe on HOGO strength. GO e/w narrowing almost points WCI ULSD LR2s to East.
• Strong gains in the HOGO, HO spreads and Singapore regrade.
• Russia extends its diesel export ban until end October whilst the US still mulls its own diesel export ban.
• Bullish short term EU and US diesel (spreads and cracks) and EU jet (differentials) but Q1 2027, even at these elevated levels, looks undervalued!

(October’s Singapore diesel spread and crack)

Last week’s commentary argued that “with all eyes on the US, where retail diesel recently topped $6/gal for the first time and a diesel export ban looks possible, it is hard not to stay bullish on Singapore diesel spreads and cracks from here.”
That call has held. October Singapore diesel cracks have gained over the past week, whilst Oct/Nov spreads have found a floor.

(October’s Singapore diesel spread)

The crack has sat at the top of its seasonal range since mid-July, and the spread has now rejoined it there.

(October’s GO e/w, Jet e/w and HOGO)

The October GO e/w, and the jet e/w alongside it, have followed that strength and narrowed over the week. Washington played its part, with the October GO e/w narrowing sharply on 24 September, from a day earlier, after the administration signalled a rethink of a diesel export ban in favour of voluntary options. The October HOGO has also gained, a move we discuss in the US section later.

(Sikka LR2s: Diesel)

The narrower e/w has compressed the arb margin gap for Sikka ULSD LR2 loaders between NWE and the Med on one hand, and Singapore and eastern destinations on the other, though those cargoes still point West.

(Singapore: Diesel)

With almost all regular ULSD arbs into Singapore closed and middle distillate stocks in the city state still very low, it remains difficult not to stay bullish Oct/Nov Singapore diesel spreads at $6/bbl, with the crack likely to follow.

(Singapore middle distillates stocks [Enterprise Singapore via Sparta])

The important caveat is China. Our pricing analyst Carrie Ho reports Chinese refiners are offering first-half October cargoes, reinforcing unconfirmed talk that October clean product exports will match September’s. Other market participants, however, report Chinese fuel inventories at more than decade lows, which argues for the contrary.

(October’s Singapore kerosene spread and crack)

Jet has run harder still. October Singapore kerosene cracks and Oct/Nov spreads have tracked diesel, with the spread move even more positive, and the Singapore regrade has gained accordingly.

(October’s Singapore regrade)

Carrie notes that Singapore jet cash differentials climbing $2.11/bbl w-o-w to +$1.48/bbl on 24 September, helped by a Pertamina buy tender for about 1.2 million bbl.

(Rotterdam: Jet)

That strength has closed South Korean LR2 jet arbs into Europe.

(October’s USGC jet differential)

With gains in the USGC jet differential combining with those in the HOGO, USGC MR jet arbs to Europe appear closed as well.

(October’s NWE jet CIF differential, spread and crack)

Those closures go some way to explaining the gains in European jet pricing over the week. With our arb calcs also showing an increasing pull of East Asian jet into the USWC, there is a good argument for continued strength in European jet from here.
We are long the October NWE jet CIF differential at $105/mt whilst Korean and USGC jet arbs remain shut into Europe. The counterweights to watch are Ryanair trimming winter flights and Dangote’s claim to be supplying most of Europe’s jet.

(October’s ICE GO spread and crack)

Last week we argued that, even with every transatlantic MR arb open into Europe and the Mediterranean softening, the only credible call was bullish on ICE gasoil cracks and spreads, given that the US supplied over a third of Europe’s diesel imports in August and an export ban loomed.
That view has not really manifested. Oct/Nov ICE gasoil spreads and October cracks have declined over the past week, though both have regained a great deal of strength over the past 24 to 36 hours on the extension of Russia’s diesel export ban to the end of October.

(October’s HO spread and crack)

Across the Atlantic, the predicted strength has arrived in full. Oct/Nov HO spreads and October HO cracks have gained very strongly into this week’s expiry, particularly over the past 24 to 36 hours. Several forces have combined to supercharge the complex:

• the low base of US diesel stocks;
• rising maintenance and approaching cold weather;
• the Russian ban, with its knock-on pull from Latin America for USGC barrels.

(October’s HOGO swap, USGC diesel differential and TC14 freight rate)

Nowhere is this clearer than in the October HOGO swap, which has rebounded from -12 cpg last week to over 16 cpg. Washington has done little to calm matters. President Trump said at the weekend he is “very seriously” looking at an export ban, shortly after rejecting Iran’s seven-day ceasefire proposal.

(Rotterdam: Diesel)

That HOGO strength has combined with firm TC14 freight to shut every transatlantic diesel arb into Europe. Michael Ryan notes the USGC open MR list collapsing from 33 ships on 21 September to six by Friday, as exporters pulled forward cargoes ahead of any ban, with October TC14 paper trading at WS 325.
Almost every conventional diesel arb into Europe is now closed. Sikka LR2 diesel arbs increasingly point East, though on margin they still favour the West.

(US ULSD stocks [0-15 ppm S] MMbbl [EIA via Sparta])

It is hard not to see this American strength seeping into European diesel pricing, and we are long Nov/Dec ICE gasoil spreads at $60/mt. The caveats to watch are the restart of Saudi Petroline exports and the White House weighing red-dyed diesel tax relief, a softer route to lower pump prices than a ban.

The higher-probability trade, however, lies further out. Europe is simply not building enough stock before winter. Q1 2027 ICE gasoil cracks at $70/bbl and Q1 2027 HO cracks at $90/bbl, elevated as they are, look like strong buys.