January Heating Oil Crack Spread

Overview

Almost 2 weeks ago, we suggested that the January Heating Oil crack spread looked poised to turn downward from the $49.35 high. The steep fall from that high saw the support we had pegged then at the $39 area having been broken last week. But, the momentum seen now suggests that the spread is bottoming. Late last week the crack spread looks to have found support in the $37.88-$38.02 area. Resistance above lies at the $41 and then $42 levels from data from the January 60 minute chart, although a rise to resistance at $43.00-$43.20 seen on the daily January chart is not out of the question to us.

The bases for our prior email touting the crack possibly weakening came to fruition. Refinery runs in the U.S. have risen to levels greater than seen the prior 2 years. This past week's crude inputs to refineries rose to 16.443 MMBPD, beating the prior 2 years figures of 16.295 and 16.022 MMBPD. Last week's demand for distillates fell by 520 MBPD to 3.362 MMBPD, lagging 2024 demand of 3.718 MMBPD, but beating 2023 demand of 3.014 MMBPD.

But, we wrote the following in our last Heating Oil crack spread email :"Now going forward, the key, in our opinion, to the cracks staying firm, even going higher, will be based upon how cold the Northern hemisphere will be this winter and by how much the Russian fuel supply is actually decreased. " The notion of cold weather in the US stimulating demand we believe is underscored by the steep rise seen the past week in the Natural Gas futures. And the notion of Russian supply decreasing or being reduced has been underscored by the headlines seen today of the reduction in crude exports loading at the key Black Sea export terminal. Additionally, Ukraine attacks on Russian refineries have continued. Thus, the narratives that would/could support the crack seem operative.

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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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