USGC Positioning Overview
/ USG - LIGHT ENDS
TA Arb has generally been closed throughout the month of July, despite tight US PADD 1 and PADD 3 inventories as tightness in ARA has outweighed US draws.
PADD-1 inventory needed rescuing via a recovery in the low imports seen through parts of Q2.
Houston NJA looks to provide relief in September delivery windows onward.
Houston is priced out of LatAm in favour of ARA as cheapest supplier into Atlantic LATAM in September.
This implies that forward GC CBOB basis must do the work to allow Houston to retake LATAM market share.
ARA positioning in the East has also been relevant; very wide E/W allowed Sing to price better than ARA into key East Africa and Pacific LATAM locations. This has put more onus for ARA to clear to LatAm and PADD-1.
/ Diesel
Low US inventory picture keeping the Hou-Rott arb shut more often to rescue US inventory levels.
Large flow to Brazil now likely to gain more importance given Russian export ban and continued refinery woes.
But big questions now for how Europe balances heading into Autumn. We still suspect HOGO will narrow at times with Europe struggling for supply.
Offset by (likely) European gasoil SPR releases ahead if prices go high enough.
Higher floor for HOGO anticipated as US has low stocks AND needs to supply Brazil.
/ Jet
HOGO was preventing the jet arb to Europe from being sustainably open!
The weekend has seen a big jump in European regrades in order to reopen these arbs.
Does Europe need it any more? It was resupplied partly on Dangote and big gains to local supply in the US and Europe.
Heading into winter, USGC regrades should drift even lower to help supply more diesel, though post summer air travel, EU and US jet demand tends to tail off.
US Jet stocks remain extremely high!
/ Crude
Drawing down of US inventory as one of the barrels of last resort over Q2.
WTI Afra arb to Rotterdam now more closed more often vs Q2 when WTI was “last barrel” and US SPR was dampening WTI paper & USG local diffs.
WTI VLCC arb to Asia looking less rosy than through Q2 – but demand from Asia (excl. China?) likely to stay remain as needed for potential Yanbu drop in supply.
Leaving Afra flow to Europe to decline (Asian buys up Vs before Europe buys Afras).
Bullish Brent/Dated Brent all else equal from here.
