Heating Oil February March versus April May spreads

Overview

The front end of the ULSD/HO curve has been weakened recently by a few factors. The main one seems to be the perception that a Ukraine peace deal will bring back Russian diesel exports and thus increase supply. Russian diesel exports have fallen by 10% thru 2025 to 779 MBPD, as per Kpler data. The 779 MBPD amount is equal to 10% of the world's global trade in diesel, as per Kpler. (Hellenic Shipping News)

The notion of increased supply has also been seen in the DOE statistics of the past few weeks. Refiner production of distillate fuel oil the past 2 weeks was 5.406 and 5.167 MMBPD, up from that seen in mid-November of 4.877 MMBPD. Also hurting the front end of the ULSD/HO curve has been the sluggish demand for distillate. The DOE statistics last week showed distillate demand of 3.786 MMBPD, which was 37 and 712 MBPD below the demand seen the prior 2 years. Last week's 4 week average distillate demand was 3.684 MMBPD, down 2.2% from 2024's four week average of 3.766 MMBPD, as per the DOE.

But, the picture for the ULSD/HO curve we believe is set to look a bit better as the prospects for a Ukraine peace deal are less imminent with news recently of increased attacks by both sides on the opposition's energy infrastructure. Also, comments from Moscow suggest they are not so willing to accept the peace terms currently being drawn up by the US and European leaders. (Reuters)
Also, the weather forecasts the past day or so suggest colder weather conditions in the U.S. in the coming weeks, which should see distillate demand rise.

Technically, the February March ULSD/HO spread is seeing momentum that is turning positive from the oversold condition that existed one week ago. Also supportive for the February March spread is the double bottom seen from yesterday/today at 1.84/1.85 cents. Below that support lies at the prominent lows seen in August and October at 1.48/1.52 cents.
Resistance for the February March spread is seen at 2.85-2.87 cents and then at 3.42-3.43 cents.

The February March versus April May condor has a less favorable look at current, as momentum still suggests that the April/May spread will gain on February/March  and thus tilt further into negative territory. One positive element for the February March versus the April May is that it is approaching support from the lows seen one year ago. The low then was -22 points. Upside resistance for the February March versus April May condor is seen at +34 and then +54-57 points.

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