December Heating Oil crack spread

Overview

Today, the December Heating Oil vs WTI crack spread rose to the best value seen for the spot HO crack since February of 2024. The crack has been supported the past 8 to 10 days by a colder forecast for the U.S., evidenced by the strong spot NG futures price move, as well as by the worries over Russian fuel supply as Ukraine continues to launch drone attacks at Russian energy infrastructure.

We had, in our email of October 30, suggested that the crack would be supported by the elements we cite above. In the email of Oct. 30, we said that we saw resistance at $44.00 and then at $45.50-46.00. Today, the crack rose over $47, but has since retreated by over $2 from the high. We believe that the crack fell back from the high today as (a) the market has re-assessed somewhat the over supply crude narrative. Kpler noted the following: 'While data points to an oversupplied market through the first quarter of next year, the analyst says that it isn't comparable to the massive glut seen during the Covid-19 pandemic. Furthermore, although the volume of oil barrels on water has increased, part of this rise is attributed to a greater volume of sanctioned barrels." (b) possible profit taking after the sharp up move, seeing as the crack was valued near $40 at the beginning of the week  (c) technical indicators pointing to an extremely overbought condition.

The RSI for the daily chart of the HO/CL crack signals a very overbought condition, as it is printing 77, which is actually down from yesterday's level of 83. Resistance is likely now at the high seen today near $47.35. That price today tested highs at the $47.20-47.25 area from the DC chart for the front month HO/CL crack spread, from data from February of 2024 and October of 2023. Support on the downside is possible at $42. 35-42.45 area from the December crack 60 minute chart, and then at the $40 area where the crack held off before making this week's strong ascent.

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This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

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