Middle Distillates
Market Overview
Diesel: Arbs, Diffs, and Spreads
PADD 1 stocks are 10% higher year on year and have opened NYH to ARA arbitrages. Houston arbitrages are nearly workable but must contend with a tight USGC MR market.
With no meaningful change in physical oil markets, HOGO would naturally price at negative values, as European supplies remain tight due to the East/West dislocation.
As crude tightening drives run rationalizations across Asia and Europe, this dynamic is unlikely to persist as Houston becomes the most advantaged hub globally.
The outlook for HO spreads remains bullish, with the complex expected to follow GO and SGO spreads higher.
However, Europe will likely face stiff competition from Singapore-linked importers for US cargoes.
Jet: Demand Destruction?
USGC jet exports have reached extreme peaks as Europe moves to secure supply ahead of the summer travel period.
Despite these volumes, USGC exporters continue to command the cheapest supply into Europe.
USWC import margins remain firmly closed as Asia grapples with jet deficits set to deepen as runs are rationalised.
Caution is warranted as reports emerge of European flight cancellations within two weeks, attributed to jet fuel shortages, an early signal that demand is beginning to feel the strain.
