ULSD/HO November January March Butterfly

Overview

Last week we spoke of expected weakness in the November January March HO butterfly. The price had risen ten days ago to just above flat on the back of concerns over Russian diesel exports. This past Thursday, the price had fallen to near minus 1/2 cent. The butterfly has fallen further with the November January spread weakening more than the January March spread.

The butterfly has fallen now to minus 1.39 cents--the lowest value in 4 months. Momentum says the fly should still widen / weaken, with support seen next at minus 1.48 / -1.52 cents and then at minus 1.80 /1.84 cents. The butterfly is testing the lower bollinger band on the daily chart today. That band on the daily chart lies at minus 1.30 cents.
Rallies for the November and March contracts versus the January body on the fly should see resistance at the prior support area at -0.75/-0.78 cents and then flat.

The market is signaling less worries over supply and demand in distillates with the weakness seen in the fly over the past week. Demand issues might be a function of the US government shutdown and the weak U.S. private sector jobs report seen 10 days ago.
As for the supply side, we point to the fact that the DOE stats last week showed the distillate supply deficit to the 5 year average having narrowed to 6% from as wide as 23% back in early July. Also, the market has realized that the concern over Russian diesel exports was overblown, as the export ban is on resellers of Russian diesel and not the makers of the diesel, who are the usual exporters.

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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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