Global refiners are pivoting away from maximizing jet fuel production to boost yields of gasoline and diesel, pushing seaborne road fuel supplies to the upper bounds of their seasonal range in July, Vortexa strategists said in a note on Friday.
Vortexa analysts said road fuel exports in July have risen to the top of the seasonal range after refiners, which had earlier maximized jet fuel output in response to soaring aviation margins during the Middle East supply crisis, redirected yields toward gasoline and diesel.
The market is seeing a clear shift in refinery economics, Pamela Munger, head of market analysis for EMEA at Vortexa, said, noting that refiners that prioritized jet fuel production earlier this year are now increasing road fuel yields as jet premiums fade.
The shift follows a period in March when jet fuel margins surged above $100 per barrel after disruptions around the Strait of Hormuz and weaker refinery operating rates in Asia created fears of aviation fuel shortages.
Vortexa said increased exports from Southeast Asia, the US Gulf Coast and Northwest Europe have more than compensated for steep declines from Northeast Asia and the Middle East Gulf.
The three exporting regions collectively supply road fuels at volumes about 15% above the highest levels seen over the past nine years.
However, despite stronger exports, the data analytics firm said that inventories remain critically low.
Diesel stocks in the US East Coast, US Gulf Coast, Amsterdam-Rotterdam-Antwerp, Fujairah and Singapore are sitting below their five-year seasonal averages, increasing the likelihood of additional cargo movements into Europe as arbitrage opportunities widen.
The improving economics have already begun redirecting cargoes from the Middle East Gulf, India and other parts of the Pacific Basin toward Atlantic Basin consumers.
The diesel market has also lost an important source of global supply after Russian seaborne exports dropped to a record low of about 500,000 barrels per day in June, with preliminary July data pointing to an even steeper decline.
Vortexa said the fall reflects both Russia's temporary diesel export restrictions earlier this month and operational disruptions at refineries following recent attacks.
Though Russian diesel is largely absent from Europe because of sanctions, lower exports from Moscow tighten the global balance by reducing supplies available to other importing regions.
China is also unlikely to provide significant relief, according to Vortexa. Though Beijing relaxed fuel export restrictions this month, authorities have simultaneously required refiners to maintain product inventories above end-February levels.
Vortexa said as a result, any increase in exports is expected to focus on gasoline and diesel, while jet fuel shipments remain constrained.
The jet fuel market, by contrast, has begun to loosen. Europe's supply concerns have eased after stronger shipments from West Africa and the US Gulf Coast.
West African jet fuel exports averaged about 150,000 b/d more between April and June than during the same period last year, effectively doubling volumes.
Shipments from the US Gulf Coast during March through June were about 35% higher than a year earlier.
Meanwhile, jet fuel loadings from the Middle East and Northeast Asia have continued trending below the nine-year seasonal range since March.
Going forward, Vortexa warned that refined product markets remain highly vulnerable if security conditions around the Hormuz deteriorate further.