Fundamentals to diverge cross regions

Market & Trading Calls

LPG:

• We have modestly increased our West of Suez propane price forecast for H2 2025 compared with last month, on the back of improving US-China trade and our expectations that flows will normalise by end-Q3 as US export terminal capacity increases, preventing WoS inventories from plumping record highs
• Meanwhile, we have modestly increased our Far East butane price forecasts for H2 2025, as the current glut in China due to reliance on Middle Eastern barrels will ease going forward as buyers slowly move back to US-origin cargoes as the year progresses  

Naphtha:

• European naphtha cracks were adjusted through the front of the curve to reflect weaker y/y fundamentals in Q3 amid additional cracker rationalization, although export demand East will ensure cracks continue to trade above the five-year average.
• E/W spread will trade above the five-year average as regional fundamentals continue to diverge as the year progresses.
• We have amended Asian crack forecasts modestly higher through the curve m/m, as recent US-Asia trade developments and the ending of unplanned outages at fresh cracking capacity will tighten naphtha balances through Q3, with China and Indonesia in particular remaining bright spots as import requirements strengthen.
• However, there remains downside risk to this view if US-Asia negotiations fail and if new units ramp up more slowly than anticipated.

Gasoline:

• Neutral WoS cracks as the region awaits clear indications from an erratic US market. While European fundamentals look constructive compared to previous years on capacity closures and improving domestic demand, the US balance is expected to lengthen y/y, with no clear sustained demand upside from attractive pump prices yet.  
• The outlook for the Atlantic Basin has nonetheless improved vis-à-vis last month, given mounting evidence of persistent challenges with Dangote’s RFCC, and more capacity at risk in Europe. We maintain our view of upside potential for cracks through to August, in line with strengthening seasonal demand, with pressure on the cards come September.
• Bearish EoS cracks as demand continues to underperform, intensifying the regional overhang this month. A shrinking transpacific arbitrage window and rising Chinese exports will add further weight.  
• With Asian balances lengthening this month and remaining longer on a y/y basis through to September, we struggle to see cracks recover substantially before Q4.

Middle Distillates:

• CIF NWE market to ease eventually: The transatlantic arbitrage dysfunction is temporary and should correct soon.
• Stable WoS jet/kero: ARA remains well-supplied, and fresh arrivals from the Far East will support stock builds.
• Tight EoS gasoil: Asian buyers remain heavily dependent on tight Chinese exports, with the E/W spread capping arrivals from India and the Middle East.

Fuel Oil:

• Neutral to moderately bearish Singapore HSFO cracks following the anticipated correction from recently inflated values.
• Neutral Singapore VLSFO cracks amid a balanced outlook on Singapore VLSFO. The drop in Kuwaiti and Indonesian exports and constrained blendstock availability are offset by steady Dar Blend flows and the continued erosion of VLSFO’s bunkering share.
• Neutral to moderately bearish NWE & USGC HSFO cracks amid spillover weakness from Asia. Yet, downside is limited by persistently low inventories and Egypt’s ongoing import demand.
• Neutral NWE VLSFO cracks from current levels as a supply-led bounce aligns with expectations following output shifts post-Med ECA rollout.

Trades of the Month

• The US rescinding licensing controls on ethane exports to China is bullish USGC ethane ratios to natural gas. However, resupplies of ethane won’t arrive in force until August, meaning alternative cracking feeds in China (naphtha and butane in particular) will remain supported through July as ethane crackers are forced to keep runs low or remain offline until next month
• The recent rally in NWE middle distillates stems largely from freight dislocations and a transatlantic arbitrage that remains shut — a situation we believe is temporary, with tanker economics poised to normalize. While cracks and timespreads have rebounded, we’d caution against chasing length here deeper into July, as easing freight rates, cargo arrivals, and Atlantic Basin length are likely to cap further upside.