Distillate Supplies Tighten As Spring Approaches
Today’s Spotlight Market
The bullish price moves for both Heating Oil and Gasoline received additional support from the Crude Oil market, where front-month futures are trading near 4-month highs. Oil prices have been supported by a continued drawdown of inventories held in storage in Cushing, Oklahoma, which is the delivery point for the NYMEX WTI futures. Even though analysts expect storage builds of around 1 million barrels when the Energy Information Administration (EIA) releases the data in its weekly energy stocks report, supplies in Cushing may continue to see draws, which would be supportive for bull spreads in the WTI futures.??? ?
Fundamentals? – ?The Heating Oil futures market (now known as Ultra-Low Sulfur Diesel) usually garners traders? attention in the late fall, as prices can become volatile as the winter heating season progresses. This season we have seen U.S. inventories become rather tight, as seasonal demand for Heating Oil remains robust due to rather harsh weather in the northeastern U.S this winter.
Overall, distillate demand is up about 6% from this time last year, led not only by above average demand for distillates used for heating, but also robust demand for U.S. distillate exports. This one-two punch on the demand side comes at a time when historically refineries begin seasonal maintenance, which will in turn likely cause lower production of Oil products such as Diesel and Gasoline.
As spring approaches, we will see refining capacity switch its focus towards the production of Gasoline, and in particular, the production of ?summer grade? Gasoline, which is required by law in many major metropolitan areas. This may help to further tighten middle distillate supplies in the coming months, especially if signs of a global economic recovery continue. ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for April Heating Oil, we notice what may be the beginning of a ?bull flag? formation. Further confirmation of this bullish pattern would occur if trading volume (outside of roll activity) declines, as prices form the ?flag? and a breakout of the upper bounds of the flag on higher than average volume would be needed to confirm the pattern. Prices are above both the 20- and 200-day moving averages, although the 14-day RSI has started to trend lower, with a current reading of 56.37. Near-term support for April Heating Oil is seen at 3.0126, with resistance found at 3.0884.
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