Tuesday January 2, 2018
The oil market began the New Year in a rather uneventful fashion, closing lower for the first time in nine sessions but remaining at price levels last seen in early 2015. Last week, despite expectations of a slight pullback near the year-end (profit taking by bullish investors), prices continued their strong advance, led by the NYMEX Heating Oil contract.
Weather in most of the country has been bitterly cold of late, the start of which coincided with the recent surge in oil prices. Many Northeast Natural Gas providers have notified their customers that supply allocations will be in place, and that heating oil supply will be met with physical oil (not gas). This “switch” occurs only during peak demand periods, and puts extra pressure on Heating Oil (HO) and Diesel supply in the Northeast. This notice, on top of the weather, pulled the HO market higher.
The NYMEX HO curve moved into much stronger backwardation (front higher than the back), as the “strongest strength” was set at the front of the curve. For example, the February (now prompt) HO / March HO spread moved from roughly 75-points of backwardation to nearly three cents of backwardation last week. This structure encourages more prompt selling of physical oil, as inventory values will naturally decline (backwardation) over time. A backward market and extreme cold has boosted distillate demand, which should remain strong for the next week.
To Our Valued Customers and Friends:
Best Wishes for Continued Success, and a Healthy and Happy 2018.