Heating Oil vs Gasoil (HOGO) - September / November / December

Europe’s refining margins for making gas oil and other middle distillates are slipping as a result of poor industrial and freight consumption and rising global inventories. The second-month gas oil crack spread has averaged just $139 per tonne so far in August down from $273 in the same month last year after adjusting for inflation, as per Reuters analysis. Some of the margin weakness is due to a weak driving season in Europe that is wrapping up as vacation season there ends. Refinery margins for European gasoline, diesel and jet fuel have all slumped to multi-month lows this week, as per Quantum Commodities reporting. This may well cause refiners in Europe to dial back their refinery runs, and thus may support to some degree more imports from Asia and the U.S.

The national diesel average 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. 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.

Can the low price of U.S. diesel translate to higher exports to Europe?  Will refiners in Europe dial back thus supporting U S distillate movement to Europe? Is demand in Europe sufficient to draw imports from elsewhere?

Technically the HOGO's for September, November and December all show negative momentum, thus suggesting further weakness for the heating oil (ULSD) vs Gasoil.

The September HOGO sees support at 2.8 cents with a near double bottom over the past 3 weeks at that level. Below that we see a spike low at the 1.3 cent area from March of 2022. Resistance lies at 5.7/5.8 cents. Current value for the September HOGO is about 3.3/3.4 cents.

The November HOGO also has a double bottom from just the past day or so coupled with a low from late May at the 5.7 cents level. The current value for this HOGO is about at the 5.7 support cent level. Below this 5.7 cent level, the next support we see is back from July, 2022 at the 2.8 cents area.  Resistance to the upside lies at the 8.3 cent area.

The December HOGO has a well defined downtrend in place, although momentum for this HOGO is the nearest of the 3 months we have highlighted in this email to showing a possible basing as it is close to oversold. Current value is about 7.4 cents, which is where we support for this HOGO from a low seen in mid-May. Support below that lies at the 2.8 cent area from values seen in July, 2022. Resistance to the upside lies at 11.1 cents from early July value.

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