Refined Products Weekly

Executive Summary

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Light Ends: Global naphtha cracks edged higher w/w as expected. Seasonal refinery turnarounds, crackers shunning LPG and the lighter Asian cracker turnaround season continue to more than offset lower blending demand and softening naphtha cracking margins. Looking ahead, we expect benchmark naphtha cracks to moderately soften by November as refinery turnarounds ease and cracker operating rates in Europe and Asia fall amid lengthening base chemical markets.

Gasoline: Global gasoline cracks rose this week, with both West and East of Suez markets benefitting from prompt supply tightness. However, support is expected to be fleeting in the West, as the effect of Hurricane Milton shrinks, and European refinery maintenance starts to dwindle. By contrast, Singapore gasoline cracks are expected to remain supported for longer, as supply tightness combines with the seasonal demand uptick in the wider region as we move towards November.

Middle Distillates: The high arrivals of diesel into Europe will likely take some time to be absorbed into markets and the break bulking required could sustain gasoil spreads in the near term. A difficult US arb is also constructive for European values. Prompt buying in Asia is supportive in the short term but Chinese, WCI and AG exporters will eventually cap the upward momentum, limiting bullishness on swaps and the EFS.

Residue: While VLSFO cracks in the East of Suez and HSFO in the West of Suez have recently been boosted by supply tightness, the reduced global supply of LSSR in September has only had minimal impacts on LSSR cracks. Moreover, LSSR has not benefited from rising VLSFO cracks as much as other grades of low-sulfur fuel oils do. Although weak gasoline and middle distillate demand have weighed on refining margins, undervalued LSSR has increased its attractiveness as a secondary feedstock, especially in Europe. This may begin to bring some improvement to LSSR cracks in the weeks ahead.

Demand: Africa’s increasing energy needs and dependence on petroleum will drive solid demand for refined products. However, rising supply, particularly in West and North Africa, will outpace this demand in the coming years, reducing the refined product deficit in the world’s largest importing region.

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