Middle Distillates

Market Overview

Make HOGO weak again

Diesel

Talks of a US diesel export ban have pushed HOGO down sharply. Given Trump’s latest comments, even if no firm export ban timelines are announced, it makes sense to remain bearish unless subsequent announcements backtrack on the ban.

An initial test at 17cpg makes sense, as the previous lower resistance, but from there onwards, we are in unchartered territory.

(HOGO swap)

Given the ongoing export Russian diesel ban, Brazil will be hit very hard by the news, resupply options will have to come from further east to backfill.

Sikka diesel will continue pointing west

Diesel

Sikka diesel exports are consistently pointing west, with even routing with the Cape of Good Hope, outperforming delivery to Singapore.

(Sikka export arb margins to Rotterdam [via Suez and Cape] and Singapore)

A weak E/W is helping this, but a resumption in Yanbu diesel exports (assuming Saudi pipeline flows are recovering), will curb opportunities.

But Sikka fob diffs are still likely to be supported as other western buyers continue to face tight supplies in the form of Russia (and maybe US) export bans.

(Sikka export arb margins to Rotterdam [via Cape] and Singapore)

Stay short on NWE Jet diff

Kero

We remain bearish on the NWE CIF jet differential, given wide-open import arbs and greater supply optionality in jet versus diesel.

(NWE Jet Cif Diff vs Singapore Regrade)

Also look for further downside in Singapore regrade, particularly if Chinese exports remain robust.

The bearish diff call is also benefiting from any upside in European diesel should a US diesel export ban materialise.