Crude Oil and Gasoline Futures Recovering, Distillate Futures Weak on Warmer Weather Forecast

Crude oil and gasoline futures experienced a steep decline earlier in the day on Wednesday but have since made a recovery around midday. However, distillate futures remained weak due to forecasts of warmer weather expected next week throughout much of the United States.

The West Texas Intermediate contract dropped to as low as $70.50 per barrel during morning trading. Fortunately, buyers stepped in, causing prices to bounce back towards $72 per barrel. Meanwhile, Brent crude futures have been outperforming WTI in recent sessions, resulting in the widening of the spread between the two benchmark prices. Although the difference narrowed slightly in morning trading, it remains significant.

Refined products continued to decline leading up to midday. RBOB futures, which had initially decreased by just over 4.5 cents per gallon, managed to recover some ground and are now trading 1.25 cents to 1.5 cents lower. The NYMEX February RBOB stood at $2.1087 per gallon, down by 0.38 cents, at midday.

In the U.S. spot markets, California CARBOB prices rose by 4.5 cents to 5 cents, while discounts along the Gulf Coast have expanded despite reports of flaring at some refineries. Discounts also widened slightly in the Chicago market as traders focused on weaker motor fuel demand caused by snow and frigid temperatures.

Conversely, diesel futures remain under pressure due to above-normal temperature forecasts for much of the U.S. next week. This upcoming warm-up is also affecting natural gas futures, which have also experienced downward pressure on Wednesday.

NYMEX February ULSD contract dips

The NYMEX February ULSD (Ultra-Low Sulfur Diesel) contract experienced a slight drop of about 4.5 cents, settling at $2.6148 per gallon just before midday. It was only a cent higher than the morning low. The major downward movement is concentrated in diesel, particularly the front-month contract, resulting in a narrower spread between the February and March contracts. At midday, there was just over 4 cents of backwardation.

Intermonth spreads and HOGO read

Intermonth spreads are also deteriorating, with trade sources reporting that the "HOGO read" (heating oil minus gas oil) has fallen below 15 cents.

Spot distillate market performance

Spot distillate markets generally mirrored the futures market, witnessing a decline of 4 to 5 cents.

Crude oil rebounding from earlier lows

After hitting lows earlier in the day, crude oil managed to bounce back slightly. The NYMEX February WTI (West Texas Intermediate) contract was still down around 70 cents at $71.70 per barrel near midday.

Brent experiencing a wider drop

On the other hand, March Brent showed a more significant decline of $1.12, reaching $77.17 per barrel. Despite the larger drop in Brent compared to WTI, its trading range during the morning was relatively narrow.

Shift towards March contract

As February WTI options approached their expiration on Wednesday, market activity began shifting towards the March contract. The March WTI contract experienced a decrease of 82 cents, wiping out the slight contango observed in WTI futures.