Collapse of middle distillate

The eye catching move today is the weakness of the middle distillates. European gasoil cracks are now at its lowest in 1 year. Stocks of Jet and heating oil in both Asia and Europe are reportedly filling storage to the brim and this having serious pressure on crack spreads in front end with probably no end in sight.


Reports are in showing strong Baltic dry index over the past few days, which has given a boost to the likes of AUD as it mostly reflects raw material trades. However, oil freight rates are going nowhere, or lower if anything and thus suggests that trades in oil related products are still not improving. Bearing in mind China was diesel thirsty last year and has now returned to being flat or next exporter of diesel, SFOT remains short of the middle distillates. However, he is taking this opportunity to take off a small portion of his short position. (sing - US gulf clean freight rates below)



Refinery margins remain strong due to Naphtha strength in the far east and Gasoline in both US and Europe. Heavy high sulphur fuel oil has also been resilient. SFOT maintains his view of a strong fuel oil crack to crude and continues to favour Brent over WTI. Note that a lot of emphasize is placed on the roll today of indices and pressure to the front WTI contract. SFOT still does not like the potential intraday volatility of the front contracts and maintain his tactical short in the 3rd WTI-Brent differential