December Heating Oil WTI crack spread

Overview

The December Heating oil versus WTI crack spread has risen to a fresh high today.  A headline from HF Sinclair, the independent refiner,  said today : "distillates are to remain in short supply this winter."

Yesterday's DOE data was supportive with crude oil inputs to refineries having dropped to the lowest level seen since January and distillate exports rising strongly. Distillate fuel production fell by 134 MBPD, while distillate exports rose by 435 MBPD to a very stout figure of 1.507 MMBPD. Overall, the ongoing concerns about diesel exports from Russia has underpinned distillate values in recent weeks.

Overall the picture for the crack looks supportive.  The only reasons, we see, for a significant retreat in the value of the crack spread would be an increase in refinery production of distillates and a drop in distillate exports. With the winter demand season in the Western hemisphere upcoming, we do not see distillate values falling dramatically. Yet, an extremely sharp move upward seems unlikely, given that currently distillate inventories are (only) 8 % below the 5 year average. This is down from a deficit of 21% back in early July.

Any sharp drop towards $35 for the current crack spread should find support, given prior resistance there when looking at this year's 2025 chart. The one slightly negative element we see for the current heat crack is the fact that momentum is overbought.

When looking for upside resistance for this year's we crack, we seek insight from recent years, when values exceeded those we see now. The Heating Oil versus WTI crack from 2023 shows resistance in the $44 area. The Dec HO/CL crack from 2022--when the distillates spiked as the Ukraine war started --suggests that the $45.50-46.00 area should provide some resistance---given highs and lows in that area from the 2022 crack.

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