Asian economy and Asian middle distillate crack spreads

Following the extremely weak Q4 GDP in Japan, Taiwan has also shown an extremely horrendous Q4 GDP figure this morning coming in at -8.36%. These are numbers well publicised in the press as multi year lows and possible even depressionary type.

As highlighted by macroman in his blog today, Indonesia and Hong Kong have not been spared the brutality of this global contraction. In the oil barrel, one of the biggest victim to this is the middle distillates. SFOT has highlighted before that the crack spreads in Jet, Heating oil and diesel (which makes up middle distillates) have been the weakest link in this meltdown, however, what goes up highest must fall the hardest proves itself right again as what happened in spring 2008 was something that was never seen in the oil world before. China became importers of Diesel as the Olympic fever struck everyone, and hedgies were rushing to stop out of the good old favourite long Gasoline vs Heat trade. This sent Asian distillate cracks to astronomical levels , 3 months before WTI peaked. Since then, witness the dramatic decline in Asian cracks. Although it is currently at a 3 year low, SFOT sniffs that recovery is far away and will be short of this crack a little further out the curve for a convergence play. Do take note though SFOT realize that this might be a very crowded hedgie position to date.

As mentioned yesterday, SFOT has bought some Mar/Apr WTI spreads for a short term punt, however he has made his $1 usd worth of p/l and taken his profit. He is still very much in the game for the Jun-Dec brent spreads which has so far moved in the right direction.