Spread traders sparking Heating Oil rally!
Normally, Heating Oil futures are quiet in the summer, as traders focus on Gasoline supplies going into the peak US driving season. However, the past few sessions, Heating Oil has out- performed its product mate, as low Heating Oil stocks and unwinding of Gasoline/Heating Oil spreads by large speculative accounts have caught traders by surprise. Since May 24th, the July Gasoline/Heating Oil spread has lost 10 cents, mostly tied to unwinding of the spreads. With refineries continuing to ramp-up production of Gasoline to meet current demand, Heating Oil bulls may be the biggest beneficiary of current tight Gasoline supplies. Turning our attention to this morning's EIA energy stocks report, traders are looking for refinery utilization to have increased last week. Current estimates are for a 0.5% increase to stand at 91.6%, but well below the above 94% rate average for this time of year. Analysts are expecting a moderate 100,000 barrel build in Crude Oil stocks, a 1.5 million barrel increase in Gasoline, and an 800,000 barrel increase in Distillates. The market has started to diminish the concerns about the disruption to Oil shipments in the Persian Gulf from cyclone Gonu, as no major damage is expected in Oman.
Looking at the daily chart for the July Gasoline/Heating Oil spread, we notice a potential double-bottom pattern forming the past two weeks, with Major support found near a 40-cent Gasoline premium. The upside target is seen at the 100-day moving average near an 18-cent Gasoline premium.
