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- Update ULSD August September Spread
Overview
On July 3rd, we noted the recent high for the August/September ULSD spread, but cautioned that it was overbought and had thus "topped out" at the high of 5.59 cents.
We at the time noted refineries in the US having shifted yield from gasoline to distillate, thus raising distillate supply. Also, we note a large speculative long position that had been built up in the distillates. Bloomberg reported that the ULSD net-long position was the most bullish in more than 18 months, as of the end of June. The threat of tariffs and a trade war, hence lower demand, have put a damper on the spread recently we believe.
The spread has fallen quite a bit in the past 2 sessions, having pierced the support at 2.35 cents that we had pegged on July 3rd. The spread fell below 2 cents today, but has rebounded well off today's low. We see support for the spread at the 1.35-1.42 cent area. Upside resistance is likely at 3.69-3.78 cents. Momentum is still negative for the spread basis the daily chart.
Yet, we see the spread as being supported below by the still very thin distillate stockpiles, that are seasonally 23% below the 5 year average as per last week's DOE data. Distillate demand the past 2 weeks has been strong versus prior years; continued good demand thus should help support the front end spread.
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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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