Oil Narratives
Oil Narrative
The divergence between European and Asian refining margins has widened even more since in our call last month. That theme is set to continue - barring any climbdown in geopolitical risk.
NWE complex margins are sharply up since the start of this month while SE Asia values are actually slightly lower.
Diesel is the king of the barrel in Europe, and we expect that to remain, but we are also bullish gasoline. Meanwhile Asia’s refiners are having a tougher time being hit with astronomical freight costs amid elevated crude prices.
From a bird’s eye view, the main message is simply to “follow the trend”. Almost all the major prices moves (crude, European diesel and gasoline cracks, VLCC freight rates) have extended gains.
Even accounting for some flat price pullback this week, fundamentals generally point to a tighter market going forwards – Russian refinery capacity still remains slashed, the threat of a US diesel export ban is growing, all while pockets of fuel shortages are also emerging.
Even with early reports of Saudi East-West pipeline repairs, this is unlikely to be a full resumption of flows.
European refiners, will feel the pinch on crude, but higher product prices will offset the impact on margins.
