This very big picture piece is summarising key insights from our recent events across crude, products, LPG, LNG and the related shipping markets.
During our stunning events in Dubai, Singapore, and London over the last three weeks, bearishness was palpable, especially related to the supply side of commodities like crude, LNG and LPG. Also in the freight market, a lot of vessel classes are oversupplied, with players hoping for somebody else to send their old vessels to the scrapyard.
The standard story of the refining sector in the new century is that most players, especially majors, are just looking for the exits, with asset sales to traders and independent players, as well as conversions to terminals or biofuel plants accounting for dominant strategies to get out of the business of producing motor fuels and some fringe products. A lot of players were expecting constantly weak refining margins as many regional markets are maturing and some turn into steady declines.
The point I want to make with this introduction is that refined products, in particular motor fuels such as gasoline, diesel and jet fuel, may offer much more attractive trading opportunities than widely thought, also in comparison to other seaborne energy assets, such as crude, LNG and LPG. Let’s have a high-level look at each of these commodities.
For crude we have seen a lot of volatility in outright prices from 2005 all through 2022, but since then futures are trading in a relatively narrow band with an evident steady downward trend. Widespread expectations for 2026 are pointing towards levels below $60/b. Even the 12-day Iran-Israel war in June added only about $12/b or less than 20% to outright prices, albeit the world’s most important transit route through the Strait of Hormuz was at risk. After the war prices fell immediately back to the levels seen before.
For the coming six months most forecasters see massive surpluses materialising, far beyond the seasonal patterns, with opinions mixed on how willing China will be to put any surplus barrels at storage (see our take here or here). Of course, for financial traders there are opportunities in time, arbitrage or quality spreads, but, generally speaking, the crude complex has been stable over recent years, and may well continue to remain so, especially if OPEC+ keeps global crude inventory levels as the key indicator of their real market supply policy.
Spot LNG and European gas hub prices have seen extreme volatility over the last four years, with the Russia-Ukraine war and subsequent Europe’s energy crisis being a key driver, combined with the lull in liquefaction capacity additions, which drove the LNG market into a massive and lasting undersupply situation. 2025 marked the start of the next supply wave and is progressively bringing the market back into balance.
In theory, the dire situation for LNG carriers should improve now, as a lot of new liquefaction capacity is coming onstream this and next year, but question marks remain whether the demand side will be able to absorb all the molecules, which is only somewhat likely at consistently lower prices. Panellists at our Innovation Series events in Singapore and London pointed out unanimously that it will take years for the market to rebalance. And for LNG shippers, the question is furthermore whether LNG supply is actually growing faster than vessel capacity and whether it is really the Far East that will see surging imports.
LPG is the seaborne energy commodity with the most consistent growth path over the last eight years, with even Covid failing to cause a persistent decline as seen for other energy products. While the demand for this versatile product has definitely been there, the supply side was in the driver’s seat, in particular in the form of immense US exports linked to the shale oil and gas boom. As with LNG, albeit not to the same extent, quite some new export capacity is coming, while the demand side looks mixed, especially at times of the US/China trade conflict curtailing the respective flows.
While freight markets are generally more volatile than the related commodity markets, at least on the liquids side, the overarching picture is that vessel supply is ample. As noted above, the LNG carrier market faces a nearly epic oversupply situation. Most tanker freight rates have been rangebound this year on overall stable flows, with trends towards regionalisation and bigger vessel classes repeatedly keeping dynamics in check.
The single biggest support factor for tankers is geopolitical risk, linked primarily to the persistent avoidance of the Bab-el-Mandeb (Red Sea) and even more so to the steady flow of vessels into the shadow and sanctioned trade, triggered by western sanctions on Iran, Russia and Venezuela. While we see some near-term upside for VLCCs due to higher West-East flows and LPG carriers (see upcoming LPG Monthly Report), the freight picture overall is mixed at best.
Annual change in seaborne energy arrivals by commodity (mbd, 12-month moving average)
In the first three weeks of September European gasoline, diesel and jet fuel cracks to Brent have been at $20/b or above (Argus Media). From a historical perspective, these levels are really high, especially given that nothing outstanding appears to be going on. It looks like ever since the Russia-Ukraine war started, cracks have shifted a gear up. On the one hand, longer supply chains (e.g. Europe’s dependence on East of Suez diesel and jet fuel) and geopolitical risk premia (will the procured barrels really arrive?) are supporting relative product prices.
But the real driver of higher product cracks in the Atlantic Basin are two structural fundamental factors:
Oversupply in capacity clears very quickly. Refiners, especially in the US and Europe, are fast-paced in shutting down entire refineries or individual units whenever signals of overcapacity emerge, rebalancing the market swiftly. This is in clear difference to the crude, gas and shipping markets, where players are much slower/less able to react to oversupply in terms of capacity (OPEC+ of course manages the actual supply, but it could also be argued that this slows down capacity rebalancing).
The marginal crude barrel goes from the West (Americas, Africa, Caspian, North Sea) to the East, meaning the relatively highest delivered prices materialise in Northeast Asia. The marginal product barrels sail from the East to the West, with the premium motor fuels markets located in the Atlantic Basis (US for gasoline, Europe for diesel and jet fuel). This squeezes refinery margins in the East and gives a solid baseline profitability in the West, especially in a loose crude and tightish product market.
In this current market setup, it just needs a couple of outages in an aging refining system to cause temporary shortages in local and regional product markets, lifting cracks to unusual highs. While we do think that seasonally the best period of the motor fuel market is now behind us, the high probability of outages will still allow for repeated upsides to relative product pricing.
In conclusion, motor fuels provide quite some upside and volatility in pricing. This is the case even in the absence of growth in global import levels. Regular capacity curtailments (planned lasting or temporary, as well as unplanned) are triggering regional market shorts amid long supply chains and limited stocks in a backwardated market. In that sense, it looks fair to say that motor fuels are the real stars in the seaborne hydrocarbon market in the mid-2020s, amid signs of oversupply in pretty much all other segments.
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Chief Economist
As Vortexa’s Chief Economist, David Wech distils valuable insights from deep fundamental market analysis