Heating Oil --December 2024 March 2025 Spread

The national diesel average at the pump in the U.S. is the lowest since March. The national average today is $3.737. One month ago it was $3.839 and one year ago it was $4.348.

The overall distillate demand in the U.S. has remained below that seen the prior 2 years basically all year, basis the DOE data.

Distillate exports have been strong of late though as per DOE data, thus supporting some of the distillate demand we are seeing. US diesel is crossing the Atlantic with record volume this summer, reaching 11.2 MMBBL in July amid low clean tanker freight rates and US diesel prices. Meanwhile, US Gulf Coast refinery run rates are strong while opportunities to move diesel domestically have been limited. (Platts)

On the positive side for the ULSD price, refinery runs have been dialed back in the U.S. with capacity utilization last week at 91.5%, down from a high in early June of 95.4%, thus suggesting less supply may support price stability.

Overall, globally as demand concerns dominate, the transportation fuels (diesel/Gasoil/middle distillates) have been under pressure. “Gasoline and diesel prices continue to trail off across much of the country as summer demand fades away. Lower demand in other oil-consuming nations is also helping to lead the downward pressure on pump prices as we approach Labor Day,” GasBuddy’s head of petroleum analysis shared in a blog post on Monday. (Oil Price.com)

The December March HO/ULSD spread is the most liquid of the 3 month spreads in ULSD currently trading on the CME platform.

As is to be expected, the spread has narrowed of late in tandem with the outright price decline seen in ULSD, which today fell to a multi year spot futures low.

In fact, today the December contract went negative 9 points versus the March contract on its low. The December March spread thus also attacked the chart's lower bollinger band. That band intersects currently at +30 points. Support below the -9 low seen today lies at the low from early June of -24 points. Resistance to the upside is at the 1.70 cent area. Momentum still is pointing downward.

But, the question is whether an interest rate cut by the Fed could see some transportation fuel demand pickup. Will refiners dial back runs further as we head to the end of driving season, thus limiting distillate supply? Will exports of diesel from the U.S. remain strong? Will any hint of cold weather towards winter cause some speculative buying, considering speculative positioning is actually net short in ULSD on the CME?

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