After experiencing a significant drop in prices on Monday, crude oil futures are making a strong comeback on Tuesday, recouping about two-thirds of the losses. However, it’s worth noting that the product contracts are outpacing the movement of West Texas Intermediate and Brent, leading to an increase in crack spreads.
One of the factors contributing to the upward momentum in refined products is the weather. Cold temperatures are providing support to diesel, and there is a possibility of extremely cold weather impacting refinery operations, particularly in the Great Lakes region.
ULSD futures are seeing a rally due to the cold weather conditions. The majority of the gains are observed in the February contract, as the spread between February and March has widened into the 4.5-5cts range. Currently, front-month ULSD is trading at $2.6417/gal, representing a rise of approximately 6.5cts.
In addition to ULSD, natural gas is also experiencing some buying support, aiming for a fifth consecutive day of gains. The February contract is trading up 19cts to $3.17/MMBtu, which is around 50cts higher than the March contract.
The RBOB contract has also seen an upward movement, with the February contract trading up 6.3cts at $2.0914/gal. This marks a strong rebound from the market lows that tested the $2 level on Monday. Notably, most of the gains are concentrated in the front end of the curve.
While most spot markets east of the Rockies are following the upward trend set by paper markets, San Francisco CAROB stands out as an exception. The market is moving towards a discount compared to futures, offsetting a significant part of the futures’ gains.
Crude oil prices have also bounced back, with the front-month WTI contract rising by $1.98 to $72.74/bbl. It’s currently only about 20cts below the earlier highs. Similarly, Brent for March is having a strong day, with the contract up roughly $2 at $78.09/bbl.
Reporting by Denton Cinquegrana, Editing by Michael Kelly