Middle Distillates
Market Overview
Diesel
Our previous short call on HOGO remains in place and has worked well so far.
AG/WCI ULSD LR2 arbs into NWE remain closed and are unlikely to open quickly. This means ICE gasoil needs to price sufficiently higher to facilitate arbitrage cargoes to begin flows from USGC.
This in turn makes diesel supply (at the margin) tighter in the East, especially since the market was looking for higher Chinese exports to loosen supply tightness
Kero
Singapore and USGC regrades look likely to weaken further from here.
These need to weaken to reopen the major jet arbs into the higher pricing in Europe.
The strength in East Asian jet (and the HOGO) is closing most major arbs into Europe from both Asia and the US. This should continue to lend short-term strength to European jet pricing, combined with the Middle East crisis.
Singapore regrade and USGC jet regrades look like a pretty strong sell, even from these record low levels.
