Oil: Quick Views

Research evidence excerpt

Oil: Quick Views

Diesel

We like gasoil for margin roll up opportunities, but the picture is not as clear due to the risk of surprise demand destruction.

Of the roughly 30 M BPD of global diesel demand, approximately 6 M BPD is related to personal transport. We had assumed

that price elasticity effects would be relatively small. We may have been wrong. The odds are increasing that diesel demand

destruction may be able to help rebalance the global S/D.

Diesel Inventory Position

Global diesel stocks are dropping at a 45 degree slope. We typically do not put much stock in inventory levels but the change

and rate of change can be useful; in this case they are. Crack levels are high but remain attractive as supply issues resulting

from refinery outages caused by war damage and run cuts caused by crude rationing and poor refining economics continue.

Diesel Supply

A relatively small proportion of finished gasoil has been lost via Hormuz, but a larger amount has been lost via 3 M BPD of

refining capacity that is either reduced due to run cuts and another 2 M BPD that is entirely due to war related damage. We

estimate 1 M BPD of supply has been lost from run cuts and another 0.9 lost directly via Hormuz. This is enough supply loss to

support cracks at current levels in our view, as well as further rallies, but likely without the base case upside that gasoline has.

Hydrocracker Hell - Upside Skew via NG Price Upside Risk

Much like in 2022, European hydrocracker economics have the potential to substantially increase the required crack spread

needed to profitably produce gasoil. If European natural gas prices increase substantially heading into the summer or for the

upcoming winter, the move presents a $1 per barrel upside for every $1 per MMBTU move in TTF.