Light ends normalise on truce, but cracks set to diverge across middle and heavy distillates

Market & Trading Calls

Light Ends:

• Bearish Middle East LPG to crude ratios; bullish Asian, US ratios, but values will be capped by the 11% tariff needed to clear into China
• Bearish EoS naphtha cracks w/w and through June, but feedstock switching and fresh cracking capacity and more Russian barrels heading West will ensure E/W remains high enough to move spot Med, USGC cargoes East
• Bearish European cracks w/w as supplies increase, crackers continue to favour LPG, blending demand struggles to dramatically improve

Gasoline:

• Neutral to Bullish West of Suez cracks: Seasonal dynamics continue to favour gasoline values, but the incoming supply push is likely to stall the momentum, which holds true for both sides of the Atlantic. Moreover, we are awaiting the imminent return of Dangote’s RFCC unit, which poses downside risk to European export volumes in the near term.
• Neutral East of Suez cracks: The point of maximum Asian refinery offline capacity is now upon us, seasonally speaking. In terms of offtakes, we are observing a decline in transpacific flows, following Valero’s resumption of exports into Mexico. Elsewhere, Indonesia has announced it intends to reduce imports from Singapore, although we remain sceptical about feasibility.

Middle Distillates:

• NWE ULSD bounce holding for now: but hinges on East–West spread dynamics
• East of Suez ULSD remains firm: though Indian inflows will curb further strength
• Jet/kero to tighten into summer: reformate margins divert yields away from kero, supporting cracks

Residue:

• Neutral European VLSFO/LSFO: Gradual rebalancing of supply/demand dynamics post-Med ECA and slowing refinery turnarounds will lift supply but growing arbitrage pull from Asia to keep markets supported.
• Steady to bullish Singapore VLSFO: Low inventories and slow replenishments to keep supply tight amid relatively firm bunkering demand. Dangote RFCC fix to tighten supply.  
• Bearish Singapore HSFO crack: Positive HSFO crack (vs Dubai M1) is historically unsustainable and will trigger a supply response, but utility demand will keep the crack elevated throughout the summer.