Western tightness to replace East – real or not?

‘- Let’s assume SoH remains closed as seems for now likely. There is a growing consensus that the tightness seen in Eastern products in March/H1 April will ‘shift West’. Does it make sense? Or at least, will E/W in products actually reflect that notion more so than now? I rather see diesel, naphtha, gasoline E/W still has some upside potential in May.

– We’ve already noted the easing of Singapore pricing in naphtha, gasoline, diesel, relative to the West recently. Asia’s temporary mini-glut also happened in our view due to hefty product flows from West-East, and substantial price & policy-driven demand destruction (or delay), which may even have come close to matching run cuts in Asia on an MBD basis in April (though lower flat prices now might even tempt some demand). Indeed, Australian fuel stocks have been fairly stable vs expectations of disaster, owing to product imports trending surprisingly high in April.

– Japanese runs have been ticking up slightly from the low 60s% utilisation, but remain poor. Some of Asia’s refineries might get limited short-term relief via arb crude (largely WTI but LatAm too) which may make a difference to crude avails vs March/April combined with SPR blending. But slate issues (general lack of resid) might worsen. China is now cutting runs (the resale of some WAF cargoes is possibly related); product exports from there are already low but can turn lower particularly on distillate.

– Adding pain, we now have arb signals in some fuels that are counter-productive for Asian balances; Singapore gasoline can supply West Coast Mexico (Premium). USG diesel arbs to Singapore are firmly closed too; something that may be being influenced by low PADD-3 stocks (those are at least visible to the market!). As I’ve said before, the US will need to deal with this via the HOGO while Europe needs higher runs (with margins at least now better given Dated’s collapse) and gasoil SPR draw.

– In the West, the biggest issue looks likely to be jet still. Airlines are proactively cutting back and you can see US yields are helping to push out more exports without drawing stock yet. Europe will be doing the same on yield. It will nonetheless be hard to short these very strong NWE regrades whilst ramping demand into summer and with max import pain yet to happen. Dangote has also become a core part of the European supply chain which is interesting given the history of operations.