ULSD Futures Turned Back at 20 Day MA despite Low Stocks
CRANBURY, N.J. (DTN) -- New York Mercantile Exchange November ULSD futures
printed a lower high and lower low on the session even as it eked out a 15
point gain at $1.9208 gallon Thursday, with an early rally again turned back at
the 20-day moving average which ended at $1.9416 gallon.
ULSD futures are backwardated through the first half of 2020, and the
calendar spreads widened today, although speculators in a net-short position
since mid-August have not embraced a growing gulf between inventory and the
five-year average. Distillate fuel supply is at a 127.3 million bbl 14-week low
on Oct. 4, data from the Energy Information Administration shows, and 13.4
million bbl or 9.5% below the five-year average.
The expanding deficit comes even as new regulations for marine fuel are set
to take effect globally on Jan. 1 that will add demand for ultra-low sulfur
distillates. There's no hint of urgency, with the ULSD crack spread settling at
$27.12 bbl Thursday, down 30cts bbl against year ago.
Concern over slowing economic growth remains the primary catalyst holding
back the ULSD contract, with diesel closely correlated with economic growth in
the United States. The U.S.-China trade war has impaired global trade, with
several U.S. trucking companies recently shutting their doors.
Price spikes frequently follow periods of complacency. The ULSD contract can
still pop higher on sliding stockpiles, with distillate inventory below year
ago and the five-year average in PADD 1, PADD 2, albeit modestly, and PADD 5,
while only slightly higher in PADD 3. Distillate stocks were drawn down in all
PAD districts except PADD 4 during the week-ended Oct. 4, with historically low
run rates in PADD 1 and 5 prompting sharp draws last week.
Despite the supply tightness, ULSD basis levels weakened in New York Harbor,
Gulf Coast, Group 3 and Chicago, although jumped in the Los Angeles and
Portland markets while flat at an elevated 14cts premium to futures in San
Settlement by the November ULSD futures contract above the 200-day moving
average now at $1.9326 gallon will likely encourage buying interest, with the
relative strength index neutral but turning up. The latest available data on
trader positions will be released Friday afternoon by the Commodity Futures
Trading Commission, offering a glimpse on whether speculators are beginning to
cover their shorts.
Brian L. Milne, 1.402.255.8020, email@example.com, www.dtn.com. (c) 2019
DTN. All rights reserved.