Oil & Energy
Global Fuel Markets Tighten on Summer Demand, Middle East Risks, Kpler Says
Global refined product markets are tightening ahead of the summer driving season, with cracks supported by low inventories, Middle Eastern risks and resilient demand, even as uncertainty over the Strait of Hormuz persists, Kpler strategists said in a note on Wednesday.Kpler analysts said gasoline cracks have surged, particularly in the US, where benchmarks are now at their highest levels since 2022.West of Suez margins strengthened sharply as inventories fell and refinery economics shifted further toward gasoline production ahead of the summer driving season.Kpler said gasoline stocks fell by 2.5 million barrels week-on-week, reaching a five-month low and widening the deficit relative to the five-year average. PADD 3 inventories remain below seasonal norms amid elevated exports.Simultaneously, yields have stabilized around 46.5%, about four percentage points below seasonal averages, though production incentives are beginning to pivot toward gasoline maximization.Retail prices above $4.30 per gallon, more than $1 above the seasonal average, are weighing on consumers, but demand remains resilient on a four-week basis.With less than three weeks until Memorial Day, Kpler analysts said the market appears increasingly tight versus both year-ago levels and historical averages, supporting a bullish near-term outlook for US cracks.European gasoline cracks also posted strong gains, though export constraints are tempering upside momentum despite attractive transatlantic arbitrage signals.Meanwhile, in Asia, Singapore gasoline cracks remain elevated but are expected to moderate as supply improves. Planned increases in Chinese product exports and reduced Indonesian demand, alongside high West-to-East flows earlier in the year, are increasing regional cargo availability.Renewed speculation about improved transit conditions in the Strait of Hormuz has also weighed on sentiment, said Kpler.Naphtha cracks appear to have stabilized after recent volatility, with Kpler analysts seeing a new lower equilibrium amid ongoing Middle East tensions and tight inventories.West of Suez, Northwest European cracks have found support as blending demand rises seasonally and cracker margins remain incentivized to lift runs. Kpler said the propane-naphtha spread has widened sharply, encouraging fuel switching, while US exports have surged to record levels, supporting global balances.Rotterdam is set to import a US cargo in mid-May, the first since the onset of the Middle East conflict, highlighting intensifying competition between Europe and Asia for marginal barrels.In the East of Suez, cracks strengthened over the week as petrochemical run rates recovered. Japan's naphtha imports from the US are expected to reach record levels, while South Korea's government support measures and export adjustments have stabilized cracker operations above 60%.China has also lifted petrochemical run rates at several state-controlled crackers amid improving margins, potentially adding incremental demand for feedstock, though these integrated units rely largely on domestic supply.Kpler analysts said despite some short-term relief from sporadic Middle Eastern cargoes, structural tightness is expected to persist through May.However, Asian gasoil and jet markets are showing signs of normalization. The analysts said improved supply from Northeast Asia and China is pressuring prompt values, while higher regional runs and inventory drawdowns are contributing to weaker pricing momentum.South Korean jet exports remain constrained by government caps, and overall Asian jet values continue their downward adjustment.West of Suez distillates, in contrast, remain structurally tighter. European physical differentials have retraced sharply amid prompt selling and renewed optimism about potential developments in the Hormuz. However, Kpler analysts said that even in optimistic scenarios, Middle Eastern supply losses will persist for months, supporting medium-term strength.European stocks are expected to trend lower in the near term, with lighter crude slates further de-optimizing distillate yields. While short-term values have eased, the analysts said underlying deficits remain intact, setting up potential compression later in the quarter.
