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 
Francisco.

   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, brian.milne@dtn.com, www.dtn.com. (c) 2019 
DTN. All rights reserved.