May Heating Oil vs WTI crack

The May Heating Oil vs WTI crack has fallen to its worst value ( basis its daily chart ) since late June last year, thus making a 9 month low. This is in sync with the trend we have seen of late for the European gasoil vs Brent crack and the Asian Gasoil crack, as we have highlighted the past 2 days in our Updates.

The ramping up of refinery runs in the U.S. over the past 6 weeks has seen 1.390 MMBPD more crude used in the refining process. Crude inputs to refineries this week ran at a rate of 15.932 MMBPD. At the beginning of the year, these runs stood at 6.679 MMBPD. Distillate output has risen from 4.042 MMBPD as of the February 14 report to this week's level of 4.814 MMBPD.?? Distillate demand as of the February 14 report stood at 3.514 MMBPD. This week's distillate demand came in at a healthy 4.028 MMBPD. This week's demand was better than that seen for the prior 2 years. Last year demand for the period was 3.713 MMBPD and in 2022 it was 3.804 MMBPD.

As the world enters the busy travel season with greater demand for fuel, upward pricing pressure is coming from the airline sector. “There’s no doubt that increased jet fuel demand reduces, somewhat, the availability of diesel fuel,” said one noted analyst.

Yet, on the other hand, “Freight activity is a big driver of demand for diesel, and thus of prices,” said the Executive Director of the Diesel Technology Forum. “We have been experiencing a drop-off in freight demand, which is a result of supply chain issues finally being resolved. We've seen a number of trucking companies go out of business as a result.” ( American Journal of Transportation)

Over 3.7 MMBBL of Russian diesel are sitting on ships idling in waters near Brazil, Bloomberg reports. Bloomberg adds that the reason and how many ships are waiting remain unknown, but the surplus underscores the growing bottlenecks in Russian energy deliveries. Bloomberg said 3.2 MMBBL covers roughly two weeks of imports for the Latin American nation, and at least two of the vessels off the country's coast are from the sanctioned Russian fleet of Sovcomflot PJSC tankers. Will shorter haul U.S. diesel supplies be drawn in to make up for lost Russian supply?

Technically the May HO/CL crack has fallen to where momentum is getting oversold. Also, supportive in the near term is the fact that today the crack settled with a mean reversion setup. The crack settled at $27.96. The lower bollinger lay at $28.32. Support for the crack basis the daily chart is seen at $27.42 and then at $26.10 via data from the DC chart. Initial upside resistance for the HO vs WTI lies at the $30 area.

Will the crack receive some support from any long liquidation that may occur in WTI, given the large increase in speculative length seen in recent weeks in crude oil ? Will bargain hunters look to buy into distillates given the refinery issues occurring in Russia at the same time as European refiners go into peak seasonal maintenance / turnaround?

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