With the winter weather in the East expected to linger for the better part of this month, the market’s concern regarding heating oil is the industry’s ability to sate this demand. remains in question.
For instance, through the first two sessions of 2010 the spread between the remaining winter months (Feb’10 and Mar’10) to the first two months of the spring (Apr’10 and May’10) has narrowed from a 1.04 cent discount to near parity. Furthermore, yesterday the U.S. Census Bureau reported somewhat encouraging numbers for the U.S. factory economy. Led by strong demand for mining, oil and gas field equipment, 11.7%, along with a 4.6% increase for steel mills, new factory orders in November came in much stronger than expected, up 1.1%. The inventories to sales ratio fell to 1.32, the lowest level since August 2008 (see DOE Distillate chard in today’s issue of ).
However, this ratio was undoubtedly skewed by yearlong efforts by manufacturers to pare the numerator, i.e. inventories of durable goods dropped for an eleventh straight month.
As such, questions regarding the health of the denominator persist. To wit, according to the EIA’s estimate, implied demand in distillates in the aggregate is averaging only 3.67 MMbbl/d over the last four weeks. That is 574 Mbbl/d or 13½% below 2003-07 timestep.
Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.