Kero and Diesel
Market Overview
Kero
May Singapore regrade has collapsed to -0.3$/bbl from a peak of +$80/bbl in early April but has since climbed back up to +20$/bbl levels.
Jet fuel requires specialized 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 competing for middle distillate barrel allocation and +20$/bbl looks overvalued.
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.
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).
