March and April HOGO -Heating Oil vs Gasoil

Overview

Today news was seen that the USGC ULSD arb to Europe is shut despite a weakening spread to Ice Gasoil as freight overwhelms fundamentals, according to Sparta Commodities. The February NYMEX ULSD to Ice Gasoil spread has fallen by more than 2 cents/gallon over the past week, though still sits at its highest seasonal level since 2023, Sparta Commodities said. The March CME Heating Oil/ULSD to ICE Gasoil spread is down more than 4 cents since last Friday, trading today at 19.6 cents.

Freight costs as signaled by TC14 rates have surged by nearly $30/metric ton in the last seven days. TC14 refers to Baltic Exchange tanker freight rates for the US Gulf Coast to NW Europe route.  (Market News/CME Group) 

European inventories are sitting 14% lower than the same period last year, as of January 27,as per Global Insights data. While, DOE data seen this week has distillate supplies 2% below the 5 year average, but 7.5% over year ago level. Thus, Europe is seemingly in greater need of supply. Thus, the HOGO may fall further as Gasoil values may remain stronger than ULSD ones.

The March HOGO peaked last Friday in tandem with the peak in the flat price seen on the expiration of the February ULSD/HO contract. The cold weather had boosted nearby HO/ULSD futures into the February expiration. But, now the technical pictures for the March and April HOGO's suggest that they should decline further basis the momentum, as the ULSD contract has fallen quite a bit and the forward curve in ULSD with it.

The March HOGO is likely to see upside resistance above at the 21.7 and then 23.0-23.2 cent areas. Support below is seen at 17.7 and then 16.0 cents.
The April HOGO has resistance likely at the recent high at 18.6 cents. Above that resistance is seen at 20.3 cents. Support below comes in at 15.8-15.9 cents and then at 14.5 cents. The April HOGO is valued today at 17.4 cents.

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