Heating Oil Futures Hold On To Overnight Gains

Heating oil futures seem to be the only contract of the big three energy benchmarks attempting to hold on to slight overnight gains as prices drift lower for a fourth day in a row. If sustained, the gasoline’s relative strength compared to its distillate counterpart will hit fresh multi-month lows - a downward trend that increased shutdowns due to the virus will likely exacerbate.

A lack of activity from the world’s largest oil cartel seems to be taking the blame for the selling pressure this morning. Discussions between OPEC & Friends on next year’s production level stalled for a third day, with the apparent snag coming from a disagreement between the UAE and Saudi Arabia over how historically non-compliant countries should remediate their overproduction in 2021.

Our friends across the pond became the first country to approve one of the new COVID-19 vaccines. Just under a million doses of Pfizer and BioNTech’s shot will be available to the most at-risk patients in the UK next week. Equities markets don’t seem to be reacting this morning, perhaps due to most players already pricing in accelerated approvals for coronavirus inoculations.  

The American Petroleum Institute published national inventory builds across the board yesterday, with the biggest bumps showing up in crude oil and gasoline stocks (+4.15 million barrels and +3.4 million barrels respectively). Diesel stocks lagged with an estimate 300k barrel build last week. The EIA’s report is due out at its regular time this morning (10:30 EST) and will likely be looked to for price direction for the rest of the day, if not the rest of the week.

While month-old upward trend lines on daily refined product futures charts have been broken this week, the bullish weekly trend line still has a chance to extend this fall’s rally. Gasoline futures will need to end the week above the ~$1.22 level, diesel futures above ~$1.36, in order to maintain upward momentum.

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