Heating Oil Spreads

Overview

The 2 front heating oil (HO) spreads have fallen to multi-month lows. In the case of the March April spread, it has hit its lowest value since October 17 of 2025. But, the front end February March spread has fallen to its lowest value since September 11, 2024.

The spreads have been pressured by the weak weather demand that is evidenced by the spot NG futures dropping by nearly 28% from its settlement 5 days ago.
Further pressuring the HO spreads is the weak US ISM data seen yesterday, which suggests weak demand for industrial fuel, for which HO is often a proxy. The ISM reading of 47.9 disappointed versus the Reuters forecast for a reading of 48.4 and was the 10th straight month of a number below the critical level of 50.

Also weighing on the HO spreads over the past few weeks has been the strong distillate production seen in the DOE stats. US refiners have clearly sought to benefit from the strong refining margin for HO versus crude oil that was seen over 6 weeks ago.
Thus, in our belief, the keys to a rebound in the value for the HO spreads lie in a reduction in distillate production in the refining process and a pickup in weather demand.

Some help for the spreads in the immediate may come from the technical picture, which shows the lower bollinger bands being tested today on the drop to the multi month lows.
The February March HO spread sees its lower bollinger band today intersecting at 90 points. The low today is 46 points. Support from data from September 2024 lies at 40 points. Initial upside resistance lies at 1.22-1.26 cents, which is just below today's high of 1.30 cents. Momentum for the spread is just slightly negative.

The March April spread sees its lower bollinger band lying at 2.35 cents. Today's low is 2.05 cents. Near term support is seen at 1.98 cents. Initial upside resistance comes in at 3.03-3.05 cents, which is Monday's high. Momentum for the spread remains negative.

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