Distillates Won't Let Go

ULSD futures have held above $2.55/gal through the July pullback in crude. NWE ICE gasoil is trading in the low $700s/mt with prompt time spreads in steep backwardation. The Gulf Coast heating-oil crack is above $32/bbl. Jet differentials in the Atlantic basin have firmed for a fourth straight week.

The two supply shocks under it

Russian refining runs are down materially versus this time last year on strike damage and knock-on maintenance. Reuters and Sparta both flag diesel export loadings out of Primorsk and Novorossiysk running well below the 2024 comparable. On the demand side, U.S. distillate stocks are at the low end of the five-year range going into peak summer trucking and pre-harvest agricultural draw. IEA's May report already flagged aviation and petrochem as the softer parts of the barrel; middle distillates are the tighter part.

Our read

The right trade here is grade selection, not directional flat price. Cargoes with 10ppm sulfur, jet-blendable kerosene cuts, and flexible discharge into ARA or the U.S. East Coast are clearing at premiums to posted assessments. Term buyers who locked HOGO structure at Q2 levels are now paying up for prompt supplemental cargoes. We expect the crack to hold a floor until Russian export flows stabilize or U.S. refinery utilization prints above 95% for a sustained stretch.