Spotlight: Has gasoil found its ‘Mojo’ or is it just a dead cat bounce?

This Spotlight from S&P Global Platts Analytics was first published October 7.

ARA ULSD cracks vs. Dated Brent hit a low of $1.35/b in mid-September and S&P Global Platts Analytics called this as a bottom and not sustainable on Sept. 30. The front month ICE gasoil spread was in a $7/mt contango at that time.

Currently, ARA ULSD cracks are at $4.30/b, a rebound of $3 in a matter of 10 days. The front-month contango narrowed to $3.50/mt over the same period. Our call was very precise and timely but what's next?

S&P Global Platts Analytics believes this move is a rebound from an oversold structure and diesel cracks. We continue to see struggles for the refining sector, however, with cracks having limited upside until demand picks up consistently and product inventories are drawn down. This will take time.

On top of that, the long-range weather forecast is for above-normal temperatures for the next few months.