From S&P Global Commodity Insights, April 11:
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.
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.
Related infographic: Who is paying the price of the shortage of diesel fuel from Russia?
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