Refined Products Weekly

Market & Trading Calls

Light Ends:

• Tightening US balances amid refinery maintenance and potential weather-related supply disruptions should buoy West of Suez cracks w/w until H2 January
• However, flexi-crackers switching to propane, softening blending demand in Europe will ensure cracks only modestly rise w/w
• Tightening Russian, Chinese balances, and ongoing Middle Eastern refinery maintenance will put a floor under otherwise weakening fundamentals as flexi-crackers temporarily switch back to propane and while crackers ex-China keep operating rates muted this month
• As such, Asian naphtha cracks will be largely flat over the next couple of weeks

Gasoline:

• Neutral-to-bearish on West of Suez cracks as high stocks will take time to reduce amid sluggish January demand and maintenance in the USGC is unlikely to provide a significant boost.
• Neutral on Singapore cracks as higher exports from China will counteract some of the increased buying due to select outages.

Middle Distillates:

• Still narrow E/W but WoS pull is growing: USGC refinery turnarounds will eventually require NWE to source cargoes from the East.
• Brazil’s currency woes cannot be ignored for long: Brazilian imports may struggle to recover as VAT changes and a weak real could constrain flows.
• Persistently tight EoS: China’s VAT changes continue to keep Singapore spot premiums elevated.

Residue:

• Asian HSFO Cracks: Benchmark Asian cracks face downward pressure from slowing policy-induced China import demand, however, looming Lunar New Year holidays could dampen near term imports. In the longer term, tighter US sanctions enforcement against Iranian oil exports could limit the downside to Asian HSFO cracks.  
• US HSFO cracks: Bearish near term due to rising offline capacity but could stabilize as imports and inventories tighten further.
• Europe: Neutral to bullish as constrained imports and Middle Eastern maintenance sustain support for HSFO margins. Meanwhile, limited arbitrage opportunities to Asia weighs on regional VLSFO cracks.