Distillate summary: Diesel margins near 2-mth lows as stocks rise
Quantum Commodity Intelligence - Diesel refiner margins touched two-month lows this week as global stocks continued to build on higher production levels and suppressed demand, squeezing the jet fuel regrade.
Global inventories of middle distillates rose for a fifth straight week, gaining 5 million barrels overall, its sharpest weekly build since early September, data from consultancy FGE showed on Friday.
While stocks remain well below more usual levels for this time of year, the build comes when barrels are usually drawn down at the start of the heating season and may indicate slowing economic activity.
Inventories have also been boosted by the easing backwardation in gasoil markets, making it less costly to store barrels over time.
The premium of the front-month December low sulfur gasoil futures over January stood at just $4.50/mt on Friday, its lowest since January and well below last month's peak of $140/mt.
In the ARA port hub, independently held gasoil stocks climbed for the first time in four weeks, up 4.2% to a seven-week high of 1.8 million mt and narrowing its gap to year-ago levels to just 2%, Insights Global data showed.
That rise caused diesel cargoes landed in northwest Europe to fall for a third consecutive week to $977/mt on Friday, down $33/mt on the week, and pushing the crack to a two-month low of $45.86/b.
Rising stock levels have also narrowed the premium of diesel barges in ARA over LSGO futures to $15.50/mt from $27/mt a week earlier, pushing its crack down nearly $4/b on the week to $39.82/b.
At the same time, US inventories rose by 1.1 million barrels to a seven-week high of 107.4 million in the week to November 18, IEA data showed, as deliveries remained a sharp 11% below 2019 demand at 3.86m bpd.
US stocks have now risen by 3 million barrels in the past six weeks, compared to the more usual decline of 11 million barrels over the same period, historic EIA data between 2010 and 2019 showed.
It was the first time stocks rose during the six weeks since the recession in 2008, EIA data showed.
Meanwhile, inventories of middle distillates in Japan are now back above 2021 levels for the first time this year after rising over 1 million barrels to 31.33 million barrels, PAJ data showed.
Coupled with muted demand from Europe, 10ppm gasoil cargoes in Singapore fell $8.17/b on the week to $117.26/b, equivalent to a crack of $31.46/b, its lowest since late September.
Refiner margins for jet fuel were relatively supported compared to diesel, as refiners continued to favour diesel over jet fuel production but came despite muted travel demand.
An expected boost in global travel capacity failed to materialise this week, travel data company OAG said, as it remains wary of the expected build-up in the number of seats heading into the Christmas period.
The total number of seats slid 0.6% on the week to 89.5 million, while prior airline schedules showed a build of 4%, partly due to the US domestic market easing ahead of Thanksgiving while China's Covid measures hammered demand there.
Jet fuel cargoes CIF NWE were last assessed at $1,016/m, down $36/mt on the week, with its crack sliding to a one-week low of $43.32/b
Yet its premium to the front month gasoil futures marginally fell on the week to $103.75/mt, sticking close to four-month highs hit earlier this month.
Jet cargoes in Singapore slid $3.1/b on the week to $115.76/b, with its crack ticking higher to just under
The December regrade narrowed to $2.65/b, compared to $4.65/b a week ago and at levels last seen before the war in Ukraine due to diesel's relative weakness to jet.