Middle Distillates
Market Overview
Diesel: ULSD looks primed to rally
Diesel inventories have plunged over the summer, adding significant fundamental support to bullish winter pricing.
Houston arbs remain supportive through the US harvest season, but the loss of NWE and MED outlets will slow the inventory draw during September.
Even with fewer diesel exports in September, LATAM pulls into Brazil and improving harvest demand look set to lift spreads. NYH remains well down the list of attractive winter destinations for Sikka barrels.
Despite high valuations, ULSD spreads will continue to strengthen.
Jet: The outlier
US jet inventories have remained healthy relative to the broader refined product complex.
In PADD 5, arbitrage into Los Angeles remains open, though winter Asian kerosene demand supporting FOB prices and Q4 Singapore regrade may erode it.
PADD 3 jet export margins to NWE remain closed, with barrels instead finding homes in Atlantic LATAM.
Overall, this continues to point to a bearish regrade value for jet 54/HO diffs.
