January 2018 is in the books! As we look back some might say it was quite the puzzling month for Ultra Low Sulfur Diesel futures with a high of $2.1431 and a low of $2.0363. Which way in the market is up, down, high, or low were the common questions being asked by industry experts during their analysis of ULSD for February delivery.
Going into February, there is a strong case to be made for a continuous march higher:
- Decline in US distillates inventory levels; down 19% versus 2017
- Weather; there have been reports of a polar vortex moving into the Midwest and Mid-Atlantic states. A large piece of the polar vortex will be shifting south over the next 10 days sending Michigan and the Great Lakes region into a cold spell.
- OPEC compliance; production cuts rose to 138% taking additional supply off-line
- Strong demand for distillates; up 17% compared to 2017
- Refining turn-around season begins; which will take supply off-line
For those that believe the market has additional upside, an interesting pattern has developed since early October 2017 that may indicate an opportunity for a consumer to consider a fixed price strategy for a portion of their fuel needs. Let's review why:
HO began a climb in October into early November. A $0.08 jump in the market eventually settled into a $0.05-$0.10 range throughout November into December. For almost two months HO bounced off the low $1.90 levels and stayed just below the $1.98 threshold. Mid-December 2017 upward momentum began to develop and HO took an almost $0.10 jump one day after Christmas. In January 2018, as previously stated, HO stayed in a range of near $2.03 and a high of $2.14.
It appears that patterns from December 2017 through January 2018 look similar to the movement we saw in October through November 2017. Could February 2018 through March 2018 have a similar pattern? Could bullish factors cause another near $0.10 jump in February like we saw in late December and early November of last year?
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