Light Ends
USGC gasoline stocks, are SUPER low…
Physical GC CBOB / RBOB looks like a likely solver over the coming months, but may not matter due to Panama Canal.
China will play a big role on outright SING 92 spreads; likely to correct higher given Chinese reticence to export prods.
Chinese runs had crept higher on crude freed up during the MoU ceasefire and SPR releases; with that flow now less certain, expect runs to retreat to preserve the SPR, keeping exports lacklustre.
Same Bab el-Mandeb risk a potential bull driver for Asian cargoes into East and Southern Africa.
For now, Sing is cheaper into most Pacific Coast Americas outlets, reliving pressure on Houston and ARA.
Risks of lowered Gatun Lake water levels going forward may further keep Sing92 competitive into West Coast Americas.
Renewed conflict between Tehran and Washington and the threat of the Bab el-Mandeb Strait closure, Nap E/W trades above +$70/mt in August and +$100/mt in the prompt.
This has opened arb opportunities for western arbs more broadly, and Houston exporters specifically, for Light Sour and Heavy naphtha to Chiba.
Houston FOBs have lagged physically, but this is likely to change.
The long-term risk is steam cracker demand destruction.
We expect that demand would decline from October to November onwards.
In the prior round of conflict, steam cracker utilisation declined from 80% to 60%.
With steam crackers in Asia operating at 75%, the risk of overhang following the current rally may become actualised.
All in all, this implies that the rally in Q3 MOPJ and E/W spreads may be capped to the upside.
