Heating oil inventory builds were much higher than expected (+6MN bbls) following weekly data released today. The strong distillate cracks have been supported by European natural gas tightness and cold weather systems both in Europe and northeastern United States. With this large build in distillates, the market took heat cracks off by $1.75. The RBOB improved by $1.5, pushing it very high versus the last 3 months.
We feel that there is limited downside here and calls will become more expensive versus puts soon. This is a good time to think about buying calls as the general market sentiment remains bearish (for now). We may test new lows, but that reinforces a call or call spread buying strategy versus long futures or swaps.
New York, 16hoo.
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