Middle Distillates

Market Overview

Trade: Long diesel E/W

Distillates

I think Asian runs cuts will have to accelerate over the coming months as the option of taking combined commercial and SPR inventory to feed refineries eventually reduces.

Wild cards are numerous; any de-risking of the SoH situation is one. Ukrainian port attacks in Russia are another which would be bullish Western pricing.

Asia and E/W is currently pricing to get rid of marginal barrels from e.g. the USGC, which will be needed in the near future when Asian supply is cut further. Demand may also be "encouraged" now by a steep drop off in flat prices.

Jet: Tighter in Europe or Asia?

Distillates

Asia's regrade doesn’t give you the impression that demand loss and supply loss are roughly equal this month. Very positive regrades in Singapore suggest tightness.

This might be a taster of things to come on diesel. But for now the regrade has maintained very high levels longer than I thought would be possible. To an extent the regrade might be making up for recent weakness in the diesel E/W, trying to re-open arbs from Sikka.

Longer term, European jet remains an interesting one; there are a lot of statements from European airlines that supply will soon run out. If true then flight cuts may have to gradually reduce the need for European regrades to price higher and higher (this is really just demand destruction).

If my call on long diesel E/W does play out, it might be that is the signal for regrades in Singapore to drop off short-term.