Clean tanker ton-miles posted a record quarter over the first three months of the year, a continuation of the acceleration in clean tanker demand which began in the second half of last year. Russian exports accounted for the bulk of the growth, but unlike in the dirty tanker segment, non-Russian ton-mile demand has also been strong. Another difference to the dirty segment is the still considerable potential upside available which could see rates hit new highs.
We have repeatedly called for a sustained opening of the transatlantic gasoline arbitrage in order to help ease the tightness seen in the US market. But is our freight-adjusted arb incentive the best measure to look at? By re-calculating the direct blending of ethanol into margins and arb estimates for a refiner producing and distributing E10, we find that not only are there gains to be made in terms of profitability but also that arbitrage conditions are already much more favorable than those for regular gasoline.
Global jet fuel demand continues its post-pandemic recovery, but predictably, the regions that began to open up first have seen the most robust improvements. The US and Europe will drive the net balance into deficit in the second half of the year, while Asia lags behind.
Clean tanker rates lifted from multi-month lows last week. The fundamentals of the clean market were arguably not as bad as the decline in rates suggested so an increase was due. But, with over 40% of Russian clean exports since the EU ban heading to the Mediterranean and Black Sea, expectations rates will push on higher will be tempered
The Chinese reopening has certainly injected a fresh set of uncertainties into a market already overrun with unknowns. In the weeks since China has undone much of the zero-Covid policies in place for more than two years, mobility has shown clear signs of picking up and yet, refinery runs surged to new highs months earlier.
With the looming physical tightness of ULSD in Europe, refiners in the wider area are already starting to look at some creative refining to try and capitalize on the attractive economics. The upcoming length in off-spec diesel might just offer some respite to Europe after it goes through the process of phasing out imports from Russia, once the embargo kicks in.
Europe remains highly dependent on Russian clean product exports, particularly gasoil/diesel. As we head towards the embargo, it was expected that reliance had fallen, not risen. The ban will, however, bring about a change in global trade patterns for both middle and light distillates.
Front month calendar spreads show that Friday's selloff hit crude harder than products. That being said, hedge funds likely continued to liquidate long positions in ICE gasoil, after selling 6,200 contracts in the week ending November 15th.
US gasoil inventories have reached record lows on several occasions this year, giving sustained support to refining margins and retail prices. Current stocks are at the lowest level at the end of October for over 40 years, and yet the US continues to export to Latin America.