Winter Weather Forecast Could be a Boon for Crude Prices

Middle distillates remain the one ray of hope for U.S. oil refiners still struggling to clear a glut of gasoline caused by over-production earlier in the year.

Stocks of distillate fuel oil are higher than normal but have been trending down for the last 15 weeks according to the U.S. Energy Information Administration (tmsnrt.rs/2aP76CJ)

Distillate stocks are currently around 152 million barrels, almost 8 million barrels higher than at the same point last year and more than 20 million barrels over the 10-year median.

However, stockpiles have fallen from a peak of 163 million barrels at the start of April, when they were a massive 35 million barrels over the same point in 2015 and 40 million barrels over the 10-year average.

Unlike gasoline stocks, which have shown an unusual counter-seasonal build up over the first part of the summer, distillate stocks have exhibited an unusual counter-seasonal drawdown.

Hedge funds have noticed the divergent trends and become much more bullish about the outlook for distillate prices than for gasoline.

By July 19, hedge funds had amassed a net long position in U.S. heating oil futures and options equivalent to 17 million barrels

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza