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Market Overview

Trade: Long Q3 mogas cracks

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May EBOB cracks are approaching Ukraine invasion levels but June and Q3 cracks still lag Ukraine levels by a good $20/bbl.

We don’t know all the answers but the major decline in gas E/W (and diesel E/W) over the last few weeks probably suggest Asian demand loss has close to matched supply loss so far (plus incremental cargoes from the West have helped).

A key theme remains is whether being long deferred gasoline cracks (and distillate, fuel oil cracks) are still looking like a trade. This depends at the basic level – and to be treated separately every month – on whether supply loss outpaces demand loss, assuming SoH remains a big problem.

The longer this conflict goes on, the worse will be Asian supply cuts in particular and therefore gasoline supply, with seasonal demand also kicking as supply drops.

But, Asian run cuts probably have nowhere near peaked yet, delayed by drawing down crude on water, supplemental WTI and LatAm flow, government and commercial crude inventory drawdowns. Flat price is down a lot too, so there is less of a signal to cut demand.

Trade: Long naphtha E/W

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A big "peace/risk-off" decline in naphtha pricing, including E/W looks wrong to us.

SoH risk remains in place, as does risk to Russian export infrastructure.

Petchem cracking demand destruction has been a major theme but naphtha supply cuts will also kick in increasingly in Asia too.

We don't think that major arbs like the Skikda – Chiba splitter arb should be this closed.

Naphtha E/W to strengthen over the coming weeks.

Gas-nap is also interesting; by now we are fairly wide, something that will tend to push more naphtha into the gasoline pool.