Still early in this turn, but a good sign for global economic demand
June 14, 2024
Key Observations:
The prompt NYM ULSD crack closed at $26.46 per barrel yesterday for a +$2.37 (+9.8%) daily advance. This price movement was the largest daily gain in nine months. Notably, the widening spread occurred with price advances in both legs.
We have been waiting for this breakout and assess it as a valid signal that neither US nor global economic demand is as poor as feared.
In late March, a breach of this spread at $30 opened the downside to $23 by late April (The Nugget: Mind the (passing) gap, 26-Mar-2024). In fact, this risk was realized on soft seasonals and competitive price pressures from renewable diesel and D4 RINs. Precautionary product inventory building by U.S. refiners ahead of the expected active hurricane season has also been a headwind. The crack bounced sideways just above–and occasionally below–$23 for a month.
Yesterday’s strong advance extended into today’s trading. The spread reached an intraday high of $27.36 this morning, according to Bloomberg. This is the highest price in two months (Apr 15).
The chart has subsequently retraced heading into the weekend. In evaluating the price movements, be aware that today is options expiry day for the also soon-to-expire Jul-24 NYM WTI crude oil futures contract (CLN4). Options open interest held by speculators has been larger than normal on fears about downside economic risks.
Source: Bloomberg, Blacklight Research.
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