Distillate summary: Price rises outstrip crude as demand picks up

27 May 2022

Quantum Commodity Intelligence - Diesel and jet prices drifted higher over the past week, hauled up by crude prices and a shortage of supply.

With crude rising on the back of an inability by OPEC+ members to boost supply and the prospect of lower Russian output, both distillates rallied over the course of the week.

By 0930 London time, June LSGO futures were marked at $1,154.75/mt, up from $1,066.75/mt a week earlier.

The premium over Brent rose back above $40/b to hit a two-week high despite rising global stocks for the third week, according to analysts at FGE.

Most of that build is in the US, though, with stocks in the UK at a 17-year low.

A shortage of fuel due to a closure of the arb, coupled with the fact Platts' will no longer accept non-Russian indications in its trading window from June, is pushing up prices of the fuel.

The east-west – 10ppm diesel swaps basis FOB Singapore minus the LSGO futures contract – started to widen, falling from -$12/mt last week to -$21/mt on Friday, a dynamic that makes the arb more attractive, but falls a long way short of real volume moving.

Asia in itself remains short but not as undersupplied as Europe, according to traders.

In the US, stocks were again higher, with diesel rising for the third week in a row, but they remain historically low, as does the world.

Brazil's state-owned oil company Petrobras has warned that stocks of diesel there could run out in Q3 amid an uptick in demand during the key agricultural harvesting season, according to Reuters, citing company sources and an internal presentation.

Jet prices tracked diesel upwards, with flat prices rising faster than crude to leave the crack at the highest level in two weeks.

Global capacity is down, but the market remains one of two halves, with prices in Europe remaining far higher than the levels in Asia.

Front month paper cracks in Singapore were marked at $29.50/b on Friday, up $3.50/b on the week, with margins in Europe at $42/mt, up $4.50/b on the week.

That move is unwinding the prices crash of the week earlier as demand mops up excess supply ahead of the European summer.

Weekly scheduled airline seats fell to a one-month low of 89 million as two consecutive weeks of losses in the Chinese domestic market more than offset strong gains in European markets, weekly data from OAG showed.

Total scheduled airline seats fell 1.7% this week to 89 million, which the travel data collator "largely attributable to the ongoing week-by-week reduction in airline capacity taking place in China."