Middle Distillates
Market Overview
Diesel
USGC-to-Europe remains shut, despite a weak USGC diesel differential, easing TC14 freight and a strong Renewable Volume Obligation.
Russia is the key upside risk. A diesel export ban would tighten the wider Atlantic diesel pool, divert replacement demand toward India, the AG and the USGC, and support ICE gasoil relative to US heating oil.
Yanbu-to-Rotterdam the only clean positive route, with Sikka barrels still preferring East and south of SoH refiner's export pace the key watch.
Positioning: Crude positioning turns bearish as ICE Brent net length is cut sharply, but European gasoil continues to see inflows while US heating oil stays flat.
Arbs open from Sikka and Yanbu for now.
But Houston has priced itself out on tight overall distillate supply (HOGO) and the deflation in European regrade over the last few weeks.
Otherwise, we still need some upside to the European regrade to get Houston barrels back in the European import mix.
To further achieve a jet "cushion" in Europe this summer requires the optimistic Hormuz story to continue.
