TORONTO, April 27 - The NYMEX heating oil crack on Tuesday broke through the $12 a barrel mark for the first time since May last year, unusually widening the the transport fuel's price difference with crude oil after the end of the heating season.
The New York Mercantile Exchange's front-month heating oil crack spread [CL-HO1=R] has more than doubled in the past month, rising to $12.67, its widest since May 7, 2009.
The crack is the difference between what refiners pay to buy and process crude oil and what they earn from selling the gasoline, diesel and jet fuel made from it. The heating oil crack is usually dominant in colder weather when heating demand drives the market.
Is this unseasonal show of strength a sign that a nascent economic recovery will increase demand for the fuel, or is just a sign of weaker light, sweet U.S. crude, pushed down and into storage at Cushing, Oklahoma by an influx of Canadian crude into the U.S. Midwest and external economic factors?
BUY HEATING OIL, SELL CRUDE
Some traders see no major resistance for the crack until $15.00.
Also, in the nation's heartland, Midwestern agricultural demand for diesel is getting solidly underway as the warmer, drier weather gets planting of corn, soy, and wheat into full swing while export demand from South America continues to thrive.
In Latin America, several major refineries are down for work. Chile's 116,000 barrel per day BioBio plant will be out of service until June after being seriously damaged by an earthquake in February.
"The export market to South America remains quite strong. While stocks remain at ample levels for the Gulf Coast distillate market, the increasing contango and steady demand will continue to be the driving factors in the cash market," said one Midwest trader.
The NYMEX crude contract ended Tuesday 2 percent lower as the euro dropped further against the dollar when S&P rating agency downgraded Greece's credit status and as the stock market fell sharply as a result.
In the Midwest, flows of Canadian crude continue to add to supplies at Cushing, the delivery point for NYMEX futures, to near record highs, pushing down the price of the light, sweet crude contract.
"We still view the dramatic expansion in the nearby heat cracks as primarily a function of the weakening crude curve," said Jim Ritterbusch of Ritterbusch and Associates.
"However, such a development will require a reversal in the recent upward trend in Cushing stocks, a development that does not appear imminent."
SELL HEATING OIL, BUY CRUDE
Distillate supplies rose by 2.1 million barrels last week, putting inventories above the upper boundary for this time of year, according to the U.S. government.
For the week ended April 16, demand for distillates averaged 3.6 million barrels per day, down almost 10 percent from 2008, the Energy Information Administration reported.
"I would most likely be a seller as the whole crack has risen on strong selling from WTI rather than because heating oil is strong," said Dominick Chirichella, of Energy Management Institute.
Other market watchers see signs of economic recovery supporting crude oil as shipping demand rises, with early indications showing a 5.3 percent rise in containers in and out of the Port Authority of New York and New Jersey, the nation's third largest port.
On Tuesday, U.S. consumer confidence reached a 18-month high while house prices rose in February on an annual basis for the first time in more than three years, in fresh signs of a strengthening economy.
"No question the economy is important but I have yet to really see it," said Stephen Schork, head of Pennsylvania-based Schork Group.
"We are swimming in distillate supply. And we haven't seen a significant drawdown."
The New York Mercantile Exchange's front-month heating oil crack spread [CL-HO1=R] has more than doubled in the past month, rising to $12.67, its widest since May 7, 2009.
The crack is the difference between what refiners pay to buy and process crude oil and what they earn from selling the gasoline, diesel and jet fuel made from it. The heating oil crack is usually dominant in colder weather when heating demand drives the market.
Is this unseasonal show of strength a sign that a nascent economic recovery will increase demand for the fuel, or is just a sign of weaker light, sweet U.S. crude, pushed down and into storage at Cushing, Oklahoma by an influx of Canadian crude into the U.S. Midwest and external economic factors?
BUY HEATING OIL, SELL CRUDE
Some traders see no major resistance for the crack until $15.00.
Also, in the nation's heartland, Midwestern agricultural demand for diesel is getting solidly underway as the warmer, drier weather gets planting of corn, soy, and wheat into full swing while export demand from South America continues to thrive.
In Latin America, several major refineries are down for work. Chile's 116,000 barrel per day BioBio plant will be out of service until June after being seriously damaged by an earthquake in February.
"The export market to South America remains quite strong. While stocks remain at ample levels for the Gulf Coast distillate market, the increasing contango and steady demand will continue to be the driving factors in the cash market," said one Midwest trader.
The NYMEX crude contract ended Tuesday 2 percent lower as the euro dropped further against the dollar when S&P rating agency downgraded Greece's credit status and as the stock market fell sharply as a result.
In the Midwest, flows of Canadian crude continue to add to supplies at Cushing, the delivery point for NYMEX futures, to near record highs, pushing down the price of the light, sweet crude contract.
"We still view the dramatic expansion in the nearby heat cracks as primarily a function of the weakening crude curve," said Jim Ritterbusch of Ritterbusch and Associates.
"However, such a development will require a reversal in the recent upward trend in Cushing stocks, a development that does not appear imminent."
SELL HEATING OIL, BUY CRUDE
Distillate supplies rose by 2.1 million barrels last week, putting inventories above the upper boundary for this time of year, according to the U.S. government.
For the week ended April 16, demand for distillates averaged 3.6 million barrels per day, down almost 10 percent from 2008, the Energy Information Administration reported.
"I would most likely be a seller as the whole crack has risen on strong selling from WTI rather than because heating oil is strong," said Dominick Chirichella, of Energy Management Institute.
Other market watchers see signs of economic recovery supporting crude oil as shipping demand rises, with early indications showing a 5.3 percent rise in containers in and out of the Port Authority of New York and New Jersey, the nation's third largest port.
On Tuesday, U.S. consumer confidence reached a 18-month high while house prices rose in February on an annual basis for the first time in more than three years, in fresh signs of a strengthening economy.
"No question the economy is important but I have yet to really see it," said Stephen Schork, head of Pennsylvania-based Schork Group.
"We are swimming in distillate supply. And we haven't seen a significant drawdown."
