While the global markets fret about another subpar Italian auction and turmoil in Europe, the energy complex is worrying about global tightness in distillate supply. The heating oil versus gasoline spread continues to scream so refiners know where to put their focus. Demand is screaming, surging in Japan, China, South America and the spread has put in its best performance in years. Not only is heating oil trading at a premium to heat oil, something that would have been almost unthinkable just a few years ago, but has picked up a dime on the spread.

US supply of distillate, when compared to demand, is at a four year low. Dow Jones reports, Surging demand for heating oil and diesel fuel, at a time of slumping gasoline consumption, has pushed the price difference between the fuels to its highest level since January 2009r December delivery settled Friday at nearly 57 cents a gallon, or about 18%, higher than the price of RBOB gasoline futures. Early Monday, the gap widened to near 65c. EIA says US diesel/heating oil demand was at 3-1/2 year high in latest 4 weeks, while gasoline use is at a 12-year low for this time of year. US Exports of diesel are near an all time high.

Reuters News reported that, Gasoil refining margins in Europe pushed higher on Monday, up to levels not reached since January 2009, as tight supply continued to bite and traders eyed the expected seasonal demand from Germany with the weather about to turn colder. The ICE gasoil crack was trading at around $21.58 a barrel at 1655 GMT, its highest level since January 2009, up fromFriday's $19.74 a barrel.

We have been telling you about the potential for this spread for some time! Make sure you are getting my daily trade levels and my reports. Just call me - Phil Flynn - at 800-935-6487 or email me at pflynn@pfgbest.com. We also told you about it on the Fox Business Network! Are you watching yet?

Phil Flynn
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