- The Asian middle distillates oil spot and paper markets regained upward momentum on Tuesday, with the diesel crack spread strongly rebounding to over $48 per barrel, directly reflecting the intense correction of geopolitical risk pricing in the refined oil sector.
- Fuel oil spot premiums showed a polarized pattern, with ultra-low sulfur fuel oil spot premiums firmly operating above $40 per ton, while the 380-cst high sulfur fuel oil spot was slightly pressured due to intensified competition for recent prompt cargo offers.
- The naphtha crack spread against Brent crude, after consecutive declines, entered a narrow fluctuation, moderately re-evaluating from about $80 per ton the previous trading day to around $74, with overall trading in the spot and derivatives window remaining light.
Middle East Risk Premium Boosts Distillate Margins
Against the backdrop of new variables in the US-Iran geopolitical situation, the Asia-Pacific energy spot and futures markets showed a strong defensive characteristic on Tuesday. Due to the renewed uncertainty of a potential peace agreement between the US and Iran, offshore hedge funds and physical traders began reverse pricing the risk of a prolonged conflict in the Middle East. This macro uncertainty directly halted the previous day's decline in diesel refining profits, pushing the diesel crack spread higher. Meanwhile, the jet fuel market also rebounded, although the actual turnover in the spot window remained low, but buyers' proactive buying in paper forward contracts significantly increased, leading to a re-evaluation of the inter-month spread structure.
Cargo Bidding Balances High Sulfur Premiums
In contrast to the strong upward movement of middle distillates, the Asian fuel oil spot market showed a relatively moderate performance, overall maintaining a stable consolidation pattern. As a series of regional refinery tenders for June loading concluded, market expectations for phased supply gradually became clearer. In the Singapore physical trading window, the ultra-low sulfur fuel oil spot premium showed strong resilience, still maintaining a high level of $40 per ton, reflecting the normalized rigid support for low sulfur marine fuel demand. However, the 380-cst high sulfur fuel oil spot price was suppressed by low-priced offers for prompt cargoes, with the concentrated influx of some arbitrage cargoes forcing sellers to marginally lower premium levels, balancing the flow of long and short positions in physical delivery.
Naphtha Refining Profit Decline Temporarily Pauses
As a light chemical feedstock, the naphtha market did not experience a deep decline on Tuesday, with the crack spread entering a plateau after two consecutive days of significant drops. The naphtha crack spread against Brent crude recorded about $74 per ton today, continuing a slight correction from the previous day's $80. Due to the downstream petrochemical units' operating rates being constrained by profit suppression and not recovering beyond expectations, the mainstream cracking units in Asia maintained their spot procurement desire for naphtha near the rigid red line. This structural weakness in downstream demand directly led to extremely low trading sentiment in the Singapore spot window, with no recorded transactions of any spot physical or gasoline derivative contracts throughout the day.
Backwardation Widens Highlighting Prompt Supply Constraints
Notably, as the geopolitical crisis deepens, the forward curve structure of diesel and jet fuel across months shows a further widening of backwardation. This near-high, far-low structure typically indicates market participants' panic over potential disruptions in prompt supply in the Asia-Pacific region in the coming weeks. Correspondingly, the jet fuel/diesel discount further deepened, closing at negative $2.05 per barrel. If the uncertainty of navigation through the Strait of Hormuz in the Middle East cannot be substantially alleviated in the coming trading days, the spot premium structure of middle distillates is likely to face further steep reconstruction, thereby increasing the nominal operating costs of downstream logistics and the aviation industry.
