Light Ends: European naphtha cracks bucked the global trend of softening w/w. However, we believe European cracks will correct lower in the coming weeks, in line with the rest of the market. USGC light naphtha cracks led the pack lower as ample supply bumped up against meagre blending demand. Meanwhile, Asian naphtha cracks edged lower as the reality of underperforming petchem demand bites, despite flexible crackers switching to naphtha. As Russian and Middle Eastern exports grow m/m over July, the growing imbalance in the global market will become clearer for all to see.  

Gasoline: The end of the downwards slope in gasoline markets in the West of Suez may be within sight, but expectations should be tempered, as production incentives remain firmly positive, amid returning capacity. In the East of Suez, the recent recovery is still in full swing, but the end of the rebound appears within sight, amid softening demand across the heavyweights, whilst regional balance length creeps into the picture.

Middle Distillates: One should not get too carried away by the recent optimism surrounding the European gasoil market following the closure of the transatlantic arbitrage window and hydrocracker issues at Shell’s Pernis refinery. The fundamentals did not change overnight – the East of Suez remains structurally long, and Europe should not face any issues importing gasoil in Q3. The recent weakness in gasoline will also divert more VGO to the hydrocracking feedstock pool, increasing European gasoil production just as Russia is poised to add more capacity in Q3.

Residue: Bitumen prices in the West of Suez have risen recently, driven by a pick-up in seasonal paving demand and gains in HSFO cracks. However, stronger HSFO cracks in the East of Suez not only failed to push up the regional bitumen prices but will also continue to discourage bitumen production as demand is unlikely to recover in the next few months. This may help to ease the tightness of the regional HSFO market to some extent.

Demand: If you are looking for products demand growth, look no further than India, whose economy is firing on all cylinders. Indeed, there is little in the way to upset total products demand growth prospects, which could add 170 kbd y/y in 2024.

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