Kero and Diesel
Market Overview
Kero
• May Singapore regrade has collapsed to -0.3$/bbl from a peak of +$80/bbl.
• Jet fuel requires specialised storage; very little was held in reserve. The only source is the refining system — already curtailed or struck from the start of the Hormuz closure.
• By week 3 of the crisis, demand destruction was visible: Vietnam, Myanmar, Philippines and Australia-based airlines have cancelled flights.
• The regrade weakening reflects diesel strengthening sharply (+35% to ~$93/bbl, $100+ at peak) competing for middle distillate barrel allocation.
Diesel
• Gasoil underpins industry, mining, transport, heating, power generation, and VLSFO blending.
• Medium sour crudes produce more middle distillates than readily available alternatives. With Asian refining (ex-India) paralyzed, gasoil output has dropped sharply. Russian refineries are also being attacked by Ukrainian drones.
• IEA SPR releases are supporting Europe — not Asia. Import-dependent markets (Australia, New Zealand) are at elevated risk and sourcing USGC barrels.
• Apr/May and May/June ICE GO spreads soared above +160$/t respectively, yet Apr and May GO E/W remains perplexingly above +320$/t and +26$/t respectively.
• E/W is negative from June onwards, but backwardation and freight mean Indian barrels point East until at least September (arb signals vs pure paper spread is interesting).
