Gasoil cracks are in focus as the market digests the prospect of lower Russian imports. In Asia, refiners are hoping to see more light sweet crudes in the market amid the US’ commitment to release supply. US gas, polymer, and iron ore prices are also in focus, says an article published in Platts.
1. Supply concerns keep gasoil prices elevated
What’s happening? The spread between Dated Brent and low sulfur gasoil in Northwest Europe had widened from about $12.25/b before Russia’s invasion of Ukraine, to as high as $59.25/b on March 8. It has since eased back to about $38/b, but remains elevated.
The market is still pricing in prompt tightness and prospects of imminent shortages. Yet Russian diesel cargoes to Europe continue to flow without major disruption, and there has been no notable drop in gasoil loadings from Russian ports.
Even so, the European gasoil market remains very tight with historically low inventories, and cracks reflect the prospect of lower Russian imports and the need to attract alternative supply.
What’s next? The key issue is if Russian flows of gasoil fall in the weeks ahead. Refinery turnarounds into May will reduce gasoil output for a time before runs rebound and output rises commensurately.
Demand destruction may also become an increasing factor, though mobility and aviation metrics remain relatively healthy. Refinery yield shifts could boost middle distillate output, both gasoil and jet fuel, but at the expense of other products, principally gasoline.
While this could temper the strength in middle distillate margins over crude, it could provide additional support to gasoline crack margins over crude, which while not as strong as middle distillate, do remain very healthy.
2. Asian refiners hope US SPR release leads to more light sweet crude exports
What’s happening? The Biden administration committed March 31 to selling an unprecedented 1 million b/d from US emergency oil stockpile from May through October.
Previous SPR releases from the US, as well as other top Asian oil consuming nations, were miniscule in terms of market impact as the volumes released were less than a few days of Asia’s total spot cargo purchases.
What’s next? Refiners and crude traders across Asia said this grand scale US SPR release could make a difference in the market.
Although the SPR releases aim to serve primarily US domestic end-users, oil majors and trading companies in the North American market could accumulate surplus light sweet crude barrels that they could push to the Far Eastern market.
Asian refiners also said they were hoping to see Middle Eastern, West African and South American crude price differentials fall should US refiners in the East Coast and the Gulf of Mexico trim their crude imports as the SPR releases cover a certain portion of their feedstock requirements.
3. Polymer prices soar after record ethylene contract price level despite demand destruction fears
What’s happening? Polymer prices, including polyethylene, have surged following a Eur230/mt increase in the upstream ethylene monomer April monthly contract price to a record high of Eur1,665/mt.
Downstream PE producers were heard attempting to pass on the record monomer increase and added high energy costs with PE offer levels heard increasing Eur300-500/mt from March in the face of stiff consumer resistance.
What’s next? Increasing fears have mounted over demand destruction through February and March as downstream converters voiced concerns over being able to absorb further triple digit price increases.
Downstream demand from the packaging sector has been heard likely to remain relatively stable, though buying appetite from the durables segment looks set to become further subdued as rising macroeconomic pressures such as inflation and energy costs weigh on end-user demand.
4. Weak Chinese demand weighs on iron ore prices
What’s happening? Seaborne iron ore prices came under pressure as the latest wave of omicron infections hit Chinese steel demand and logistics flow.
Import losses between the seaborne and Chinese portside marketremained wide for the mainstream Pilbara Blend Fines, as Chinese steel mills prefer to buy the cheaper lower-quality ore to manage production cost amid thin steel margins.
What’s next? Doubts loom on whether China can still meet the 5.5% GDP growth target set for 2022. The strength of the iron ore prices hinges on how fast China can tame the current wave of infections and what additional fiscal and monetary support could be expected from the government afterwards.
5. Heat wave set to affect US Northeast spot gas prices
What’s happening? Spot natural gas prices in the US Northeast and Appalachia have observed narrower basis discounts to cash Henry Hub over the last week of March and first week of April.
Appalachia spot gas benchmark Eastern Gas, South has had its basis spread to cash Henry Hub tighten to a 39.50 cent discount as of April 7, up from trading more than $1/MMBtu lower than the national benchmark during the third week of March.
What’s next? The dynamic is set to reverse going into the second week of April as forecast above-average temperatures enter the scene.
Dramatically warmer temperatures are set to sharply weaken local gas demand, disrupting this equilibrium, which could widen basis spreads considerably in the near-term.
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Source: Platts
