HO/ULSD November January March butterfly

Overview

Overall --during the past 2 months --the November January March HO/ULSD butterfly has been in a range between minus 75 to minus 78 points and plus 15 to 25 points--with the +25 point price having been reached last Thursday amid the worries over Russian diesel exports.
Momentum for the butterfly has turned negative this week as the price has now swung to the January March spread being valued more than the November January spread and thus the butterfly is back to being in negative territory. The momentum turn seen this week is signaling now that the body January is favored being bought versus selling of the wings ( November and March ). Below the support for the wings seen at minus 75 to minus 78 points, the next support lies at the $-1.12-$-1.14 area. In the near term, it seems that positive values for the butterfly will be hard to sustain, meaning that the November January spread will continue to trade at a discount to the January March spread.

The fall this week in the butterfly value --with the wings of November and March losing value to the January body--is likely for a few reasons. One, would be liquidation of length taken on in HO futures during the runup seen last week due to the worries over the export ban of Russian diesel exports. The faster drop seen now in the November January spread versus the January March spread is also likely a function of worries over demand. The US jobs report seen last week was weak and thus has raised doubts about demand. This is added to the negative tone from the crude oil market that is believed to be heading to oversupply with OPEC+ set to increase production. 

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Disclaimer

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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