Heating Oil Condor Feb/March vs April/May

Two months ago, when we last discussed this relationship,? the Feb/March versus April/May condor was valued just above flat at +6 ticks. It is now worth -19 points or -0.19 cents.

The overall range for this relationship over the past 6 months has been from a low seen in July of -0.34 cents /- 34 points to a high of +0.5 cents/ +50 points seen in late September. Those to us are the thus most operative support and resistance levels for now. There is some resistance seen in the + 0.37 cent area.

Momentum is negative for the spread. This suggests that Feb/March will move further negative versus the April/May, but the relationship settled below the lower bollinger band on Friday on the daily chart, thus creating a mean reversion set up, that was confirmed today as the condor rose back above the lower bollinger band, thus offering a supportive element for the Feb/March versus the April/May. That band lies today at -0.23 cents/-23 points.

When we last reviewed this relationship 2 months ago, we offered the following factors in favor and against the Feb/March in this relationship. They remain operative.

We believe that the condor ( favoring the Feb/March vs the April/May) will be helped by several factors if they were to be seen : 1) continued lower refinery operating rates--which was spoken about today in news we mentioned that Lyondell was closing its Houston refinery, which has a capacity of 264 MBPD? 2) cold weather generating demand? 3) any stimulus seen as supporting Chinese demand? 4) lower U.S. interest rates? 5) any significant rise in geopolitical tension that would lead to much higher oil prices, that would induce speculators to buy back short positions they currently have in ULSD/HO; speculators have remained net short ULSD, in fact increasing their net short by 18,933 contracts in the latest CFTC data, bringing their net short total up to 46,823 contracts.

Factors that could negatively impact the condor ( thus hurting the Feb/March versus the April/May ) are :1) a belief that Chinese and overall global demand for distillate fuels will continue to be weak ---this notion of lower Chinese demand was cited today in their disappointing retail sales data issued for November? 2) a slow start to the heating season, thus retarding demand?? 3) a ramping back up of refinery usage, thus raising supply

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