On one hand, the ULSD market has the tightest inventories versus a year ago of the entire petroleum complex, but on the other, the spec and fund net long is the largest of the actively traded energy contracts. The ULSD market is facing sluggish demand from air travel, but that might be offset by surging US trucking demand. With the holiday shopping season approaching and the US Administration implementing assistance plans and fines to get ports moving again, we would expect shipping demand for diesel trucks to ramp up. In short, we expect ULSD demand to rise moderately in the coming two months, with the demand for jet fuel picking up around Thanksgiving and clawing higher through the end of the year. A signal of improving demand for ULSD could be if the weekly implied distillate demand reading comes in consistently above 4.3 million barrels per day.
We continue to see the current US refinery operating rate as insufficient to rebuild product inventories. This past week’s EIA report showed a year over year diesel stocks deficit of 30.8 million barrels. The US refinery operating rate continues to come in nearly 15% below capacity. After a significant flare-up in crack margins in in late September and early October, profitability has fallen back into the range seen from May through mid-September. This could discourage additional refining activity.
The diesel market is overbought from a spec and fund positioning perspective, but the market’s recent correction should have balanced that position slightly. Heating demand should see a sharp increase in the coming weeks, and trucking and holiday travel should begin to ramp up as well, and this could widen the diesel and distillate stocks deficits.
—
Originally Published on October 29, 2021
Charts Source: EIA
Disclosure: The Hightower Report
This report includes information from sources believed to be reliable, but no independent verification has been made, and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the expressed written consent of The Hightower Report is strictly prohibited. The data contained herein is subject to revision; independent verification is recommended. Any third party opinions regarding this report are not necessarily those of the authors. Due to the volatile nature of futures and options markets, the information contained herein may be outdated upon its release.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from The Hightower Report and is being posted with its permission. The views expressed in this material are solely those of the author and/or The Hightower Report and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.