HO Market Update
Energies surged over the weekend as Saudi oil installations were attacked -Monday the markets jumped the most in many years --only to retreat Tuesday and Wednesday as the Saudis said that they would restore crude oil output by the end of the month.
We continue to read accounts though that mention a risk premium that needs to be factored into prices going forward.
In Asia, some are of the mind that the jet fuel market is likely to remain supported as heating oil demand gathers steam ahead of the peak winter season in north Asia. This, coupled with several refinery turnarounds in the Middle East are likely to bolster Asian jet sentiment.
One of the most volatile market outcomes in the aftermath of the Saudi attacks has been on the prompt East-West arbitrage spread. Fear in Europe of loss of crude oil and the possibility of lower refinery runs led the gasoil market to firm up --thus opening the arbitrage window for moving gasoil from Asia to Europe.
Some worry that the Saudi announcement Tuesday that they may supply less low sulfur crude could affect the supply of middle distillates --such as lower sulfur fuel oil -ahead of IMO 2020. (Platts source)
In the US, distillate stocks remain 6% under the 5 yr average as the DOE showed supplies rising by 0,637 mln bbls this week --in line with expectations --noteworthy is the large drop in refinery runs seen in the DOE data - -crude inputs down by 788,000 bpd / -3,9% capacity utilization ( a drop of 0,5% was forecast).
Distillate fuel product supplied averaged 4.0 million barrels per day over the past four weeks, down by 2.0% from the same period last year. Jet fuel product supplied was down 1.4% compared with the same four-week period last year.
If this persists, we personally wonder if stockpiles of heating fuels will grow enough in the coming weeks.
The October January ULSD spread seen on the CME has risen to a premium for October currently of 155 to 165 pt-- having reached a high of 242 pts on Tuesday ---there is a gap from 82 to 89 pts October premium --momentum favors January presently --but it seems that October will continue to carry a premium -something we were skeptical of happening when we last wrote about the HO markets --as mentioned above a drop in US refinery usage and the strength of European gasoil are likely to keep front end ULSD values firm.
The flat price for ULSD on the CME has climbed out of the range that persisted from early June until last week.
Currently there is a gap that was created over the weekend --the gap in spot ULSD futures prices lies down to 1.8910.
Today's settlement for spot ULSD futures was 1.9733 .
We see support for spot futures in the 19530-50 area --then at 18910-30.....resistance above lies at 20200-15 then 20700-25.
ULSD spot futures have a double top in place from Monday's and Tuesday's highs at 2.0966/2.0999 --these values will be hard to be seen again until crude oil moves back to over 62 dlrs for WTI .
Volatility is likely to be the watchword in the coming week as the market digests recent events and further details are revealed.
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