Distillate summary: Rebound caps diesel losses, jet catches up

9 Dec 2022

Quantum Commodity Intelligence – A rebound in gasoil prices on Friday limited the week’s losses after rising stocks, slowing demand and tumbling crude hammered down levels, while jet caught up with diesel pressuring the regrade.

Diesel cargoes CIF NWE hit a pre-Ukraine war low of $833.25/mt on Thursday as Brent slid below $76/b, amid global recessionary concerns, before rebounding to $843/mt on Friday, ending the week over $100/mt lower.

That left the crack nearly $5/b lower at $35.84/b, at levels last seen in August, even as Brent fell $9.30/b over the same time period.

Cracks were again under pressure as global stocks build for a seventh straight week, consultancy FGE said on Friday, which noted “a very large” 8.2 million barrels rise, with gains everywhere bar Singapore, where stocks fell by 0.7 million barrels.

In Europe, gasoil stocks rose 2.9% on the week to 1.77 million mt, Insights Global data showed, but remained 7% below year-ago levels and 16% below the five-year average after stocks have been drawn down for most of 2022.

This week’s rise in stocks came as importers have been rebuilding inventories ahead of the EU’s ban on Russian product imports in less than two months, while the flatter market structure is more favourable to storage.

Yet those European imports are expected to slow this month to 4.39 million mt from 7.04 million mt in November, Refinitiv data showed, which supported the market on Friday and caused the Dec/Jan spread to flip back into backwardation by the end of the week.

The global rise in gasoil stocks was again led by the US where inventories hit a nine-month high of 118.81 million barrels, narrowing the gap to 2019 levels to just -3.9% (or 4.8m bbls), its closest since the start of the year, EIA data showed.

Refining in the US remained well above the seasonal norm, matching its August peak of 16.6 million bpd, as they focused mainly on distillate production as gasoline margins saw even sharper losses recently.

However, US gasoil deliveries fell for a fifth straight week to 3.55 million bpd, 12% below the 2015-2019 average, and raising fears that high energy prices are slowing economic activity.

That slowdown in domestic freight was confirmed by data from the US statistics bureau which showed the number of intermodal containers hauled on US railroads in October hitting its lowest since 2013.

10ppm gasoil FOB Straits followed a similar pattern to European diesel, with the spot touching a low of $101.40/b on Thursday before rebounding to $104.40/b on Friday, ending the week $14.2/b lower.

The crack fell by less than $2/b over the same period to a two-month low of $30.26/b, while M1/M2 timespread narrowed to $1.9/b.

Asian diesel cracks have been hammered down as Chinese gasoil exports hit a 20-month high of 590,000 bpd in November, Kpler data showed, following higher export quotas and slowing domestic demand.

Asian gasoil demand outside of China has been more resilient, however, with Indian consumption hitting a record high of 1.93 million bpd in November, PPAC data showed, 3% above pre-Covid levels, offering fresh support.

Jet fuel

Jet fuel cargoes landed into Europe saw sharper losses as they caught up with the bearish moves in diesel, with the outright falling $132.50/mt on the week to $879.50/mt, while the crack slumped to a three-month low of $34/b.

That pressured the regrade in Europe, slipping from $64.50/mt a week ago to $36.50/mt as winter holiday travel demand has disappointed so far.

Global airline capacity fell back below 90 million seats this week, widening its gap to 2019 levels to 15.7%, its widest in two months, travel data firm OAG said.

Its gain over 2021 shrank to just 9.6% at the same time, its lowest since the start of the year.

Airlines have continued to cut capacity last minute as a seasonal build up in travel demand leading up to the end-of-year festive period has so far not yet materialised.

This was reflected in US demand tumbled by a fifth last week to 1.4 million bpd, widening its gap to 2019 levels to 12.3%, EIA data showed.

In Singapore the spot regrade, slid from -$3.74/b ($23.8/mt) a week ago to -$4.20/b ($14.81/mt), following a similar pattern.