Distillate Oil Market Update 2/25/21

Overview

Oil prices have risen to fresh multi-month highs on the back of positive feelings about vaccine rollouts, U.S. stimulus and the weaker U.S. dollar. In addition, the recent storm in Texas caused disruptions that are still being worked out.

Evidence of the disruption in products supply is the drop in refinery runs seen in this week's DOE report. Refinery capacity usage fell by 12.5% to 68.6%. The amount of crude supplied to refineries fell by 2.589 MMBPD to 12.23 MMBPD. The one drawback is that the recent storm(s) throughout the U.S. caused gasoline demand to drop by 1.2 MMBPD to a low total of 7.207 MMBPD. This compares to the prior 2 years' figures for the period of 9.035 and 8.981 MMBPD. Gasoline supplies are 1% over the 5-year average as per this week. The diesel/heating oil  end of the barrel has fared better. Demand as per this week was 3.932 MMBPD, which was down 0.522 MMBPD from last week. Still, this was near to the prior 2 years' figures of 4.119 and 4.076 MMBPD. Distillate fuel oil supplies are now 3% over the 5-year average. Just one month ago, distillate fuel oil supplies were 8% over the 5-year average. 

Pfizer, Moderna and Johnson & Johnson executives say they are working all the angles on increasing COVID-19 vaccine production and expect to amp up weekly deliveries by tens of millions by the end of March. (fiercepharma.com) This news gives impetus to demand rising in the coming months. 

The dollar index against a basket of six major currencies was trading near a 6-week low on Wednesday. (Reuters)

In Asia, the jet fuel crack versus Dubai crude has risen over the past month from $3.12 to current value of $5.38. The current value is near the highs seen in December, reaching near to the values of 11 months ago. The rise in the crack has been attributed to an increase in the number of scheduled flights. However, Asia's cash differentials for jet fuel dropped to their lowest level in three months today, weighed down by persistent weakness in aviation demand, as international travel still lags. (Reuters) Despite the overall petroleum supply rebalancing, jet fuel will remain a hole in the global market until travel restrictions to contain the novel coronavirus are eased and international passenger aviation resumes. (Hellenic Shipping News)

The jet fuel market is expected to witness substantial growth owing to the discovery of new methods of deriving aviation fuel. This will lead to the replacement of petrol-based conventional fuels which involves kerosene-type distillates as new synthetic fuel is believed to have advanced to the point where it gives an equivalent performance as compared to any fuel derived from conventional sources. The rise in the biofuel industry to test, evaluate and create synthetic aviation fuel is contributing to the expansion of the aviation fuel market. (Fresno Observer)

The Asian gasoil market is being supported by lower exports from India and the Middle East in February. This was happening despite the news that Chinese gasoil exports were at a 4-month high this month due to weak domestic demand. (Platts) Diesel exports from India dropped about 12% in January from the preceding month, government data showed late last week. With manufacturing activities and transportation demand picking up, India's diesel exports would likely remain limited in the short-term, market watchers said. The overall gasoil demand in Asia, however, is expected to strengthen gradually as countries ease coronavirus-related restrictions, while seasonal refinery maintenance in coming months would keep supplies tight, trade sources said. The gasoil crack from Dubai hit a more than 10-month high of $8.48 Friday February 19, slipping this week a bit. (Reuters)

Europe also saw supplies being drawn from the region. Exports to the U.S. were noted last week. Massive refining outages in Texas due to freezing weather has led to a flurry of fuel tanker bookings from Europe, which is contrary to the normal flow. Normally U.S. supplies head to Europe. Imports on the route are also on track to remain firm in March. Gasoline and diesel profit margins in Europe have also risen, with the Northwest European barge crack spread hitting its highest since October around $4.50 a barrel on Thursday February 18. U.S. Atlantic Coast imports of diesel and gasoil from other countries was seen at 380 MBPD in February, at the same level of a multi-year high reached in November, according to oil analytics firm Vortexa. Gasoline exports from Europe to North America have also spiked. (Reuters)

Technicals

Technically, we have greatly underestimated the strength in the petroleum complex, although some of this is due to the unusual events seen in Texas this past week. Weekly Continuation charts show momentum very overbought for the RB & ULSD. For ULSD, we see upside resistance in the 1.9400-50 area. Support is seen near the high of 2 weeks ago and the low of last week at 1.7750-75. For current spot RB futures, the resistance to the upside is seen at 1.9260-65. Support lies below at 1.7865-85. The low this week is 1.7864. For the April RB contract, we see upside resistance at 2.0040-50. The support for April lies at the values mentioned for spot futures. We mention the April contract values since next week April will become the spot contract and the change in contract specifications boosts its value. 

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