09-30-2018: November Heating Oil: Home Heating May Face N/E Crisis Situation

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

            3          5

4

6
2     1


Introduction

Oil prices have been shooting up due mainly to a supply/demand situation, restrained production by OPEC, sanctions on Iran, and import duties and retalliatory tariffs, all of which is making domestic oil producers very happy with the current U.S. Government Administration. But not so happyi are New Englanders, who are facing very much higher home heating bills to the extent that possibly they will have to choose between freezing and eating in places like Maine. The Government of Venezuela, even though it was a dictatorship, contributed resources to help with heating bills to poor familes in the past, but economic and political chaos there has cut off oil procuction from that part of Latin America.

There are varying opinions, and heating oil prices are reactive, and also contra-seasonal against expectations in the recent past, but the majority of analysts including those in the Energy Information Agency are looking for much higher heating oil prices. this winter.


Intermarket Analysis

We fed Heating Oil, Gasoline, and Crude Oil into a neural network to get the following result:




Parabolic Chart

November Heating Oil:

Parabolic Chart


Nirvana Chart

November Heating Oil:

Initial Chart


News Analysis

Saudi Arabia appears to be waiting for even higher crude oil prices before putting more oil onto the market. However Saudi Arabia may be incapable of providing all the oil needed in the current market. U.S. Energy Secretary suggested the U.S. might tap into the strategic petroleum reserves to make up for lost Iranian supply. There was a surprise build of 1.8 million barrels in the Energy Information Agency crude oil stocks report this past week. U.S. refinery operating rate declined by 5% while at the same time gasoline stocks rose by 1.5 million barrels implying a fall in demand for gasoline. An even bigger supply suggestion came from Nigerian officials that OPEC would make up the world supply shortfall with "excess capacity." Oman crude oil hit a four year high at $90/barrel adding to recent bullish sentiment. EIA crude stocks rose 1.852 million barrels and are 74,997 barrels below year ago levels. Crude stocks are 9.862 million barrels below the five year average. Crude oil imports for the week were 7.802 million barrels per day compared to 8.024 million barrels the previous week. The refinery operating rate was 90.4% or down 5% from last week compared to 88.60% last year and a five year average of 89.46%.

The 5% one-week decline in U.S. refinery activity did not benefit crude oil products. But rumors regarding the Saudi supply side have not stopped product prices rising. The energy complex focus will shift toward product stocks deline. Demand related to heating and gasoline is shifting toward normal seasonal patterns. EIA distillate stocks fell 2.241 million barrels and stand at 164,000 barrels below last year and 3.641 million below the five year average. Distillate imports came in at 124,000 barrels per day in the latest report comared to 141,000 barrels the previous week. Average total distillate demand for the past four weeks was down 0.67% compared to last year.

The energy complex is technically overbought. Oman prices at $90/barrel reduced U.S. refinery demand and also we have acceptance of a loss of 1 million barrels per day of Iranian supply.

New Englanders struggling to pay gasoline prices topping $4/gallon should brace for more bad news. Home heating oil costs next winter are expected to hit record highs. A typical household delivery that cost $500 last winter could climb to $850 this winter. About 40% of Massachusetts homes use oil heat. More than 963,000 households in the state use heating oil delivered by more than 800 distributors. In Maine, four out of five households heat with oil. Just getting through the winter in New England is becoming that part of the country's Number One priority.

Senators Kerry and Snowe have sponsored a bill in Congress to mandate that heating oil from the Northeast Home Heating Oil Reserve should be released if home heating oil tops $4/gallon this winter. Small oil dealers are being squeezed because manyu customers simply can't pay or are behind in payments. Dealers' suppliers want payment within 10 days.

Oil truck drivers in Iran went on strike over working conditions. The Iranian economy is already faltering under new sanctions imposed by the U.S.

It makes sense for heating oil customers to stock up early and pay the current "spot rate" rather than wait for winter. Customers who pre-pay for deliveries may have to pay a surcharge to eliminate the risk of rising or falling oil prices to the distributor. Consumers are willing to pay a "lock-in" price plus a little more of say 10 to 25 cents per gallon more than the current deliveryi price to lock-in a future delivery price.

The EIA is expected to release new heating oil price estimates for 2018-19 in the 2 weeks following date of this article.

The Saudis and Russia are aware of oil prices rising high enough to dent demand. Venezuela's output continues to decline amid an economic crisis there. J.P. Morgan estimates an increase of 400,000 barrels per day from non-domestic sources. J.P. Morgan sees the current energy sector rally unwinding back to 2017 prices. It believes current supply/demand fundamentals are already starting to weaken. There have been downward revisions in estimates for economic growth in Europe, Latin America, and the MIddle East. Geopolitical risks are the main factors in possibly driving oil prices higher.

EIA estimates currently expect West Texas Intermediate oil prices to average $6 lower than Brent crude oil prices in 2019. Natural gas stockpiles are low for this time of year, but production is booming, so traders seem unconcerned about tight supplies. As long as the weather remains mild across most of the country, heating oil and natural gas demand will stay low and prices unlikely to move much higher.

The U.S. Energy Department sees an increase of 21% in the average cost of home heating oil this winter.


Point & Figure Chart


251.0|                                                                  T  9/27
     | NYM - Nov-18 Heating Oil #2, 42000 gal, c/g Cm.=0.01  Lim.= 0.4
     |
     |
     |
231.0|O__X_____________________________________________________________________
     |O  XO                    X X
     |O  XO                    XOX
     |OX XO                    XOX
     |OXOXO                    XOX
211.0|OXOXO____________________XOX_____________________________________________
     |OXOXO                  X XO
     |OXOXO                  XOX
     |OXOXO                  XOX
     |OXO O                  XOX
191.0|OX__O__________________XOX_______________________________________________
     |OX  OX                 XOX
     |OX  OXOX         X     XO
     |OX  OXOXO        XO    X
     |OX  OXOXO  X   X XO    X
171.0|O___OXO_O__XO__XOXOX___X_________________________________________________
     |    OX  O  XOX XOXOXO  X
     |    OX  O  XOXOXOXOXOX X
     |    O   O  XOXOXOXO OXOX
     |        O  XOXO OX  OXOX
151.0|________O__XOX__O___OXOX_________________________________________________
     |        O  XOX      O OX
     |        OX XO         OX
     |        OXOX          OX
     |        OXOX          O
131.0|________OXOX_____________________________________________________________
     |        OXO
     |        OX
     |        OX
     |        OX
111.0|________OX_______________________________________________________________
     |        OX
     |        OX
     |        OX
     |        O
 91.0|_________________________________________________________________________
     |
     |
     |
     |
 71.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
      1      11      111
      2134589001446890112445572268
      0311221012011100020121300202
      2005684935426213217279157658
The above chart is giving a conventional buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern." It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Heating Oil (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $420. Initial margin on a single contract is $4,180. Use of options is advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are remaining long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Heating Oil January 2.25 Put and Sell (1) Heating Oil January 2.27 Put @ 0,0078 to the sell side or greater.


o 1 o 2

o 3

o 4 o 5


Calendar Spread

What the Nov. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at 1.00 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 5.00 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be midway with no particular trend detected in either direction.





Level Table:

Level Table

The path of least resistance is up.
240.0|                                                                  T  9/27
 NYM - Nov-18 Heating Oil #2, 42000 gal, c/g Cm.=0.01  Lim.= 0.4
     |
     |
     |
230.0|Z[[   <<<
     |QRRRRYZ[
     |QQQRRRRRYZ
     |QQQRYYYYYZZZZZ
     |QQQRRRUYYYYYYYZZZZZZ
220.0|QQQRRRRTUUUXXYYYYYZZZZZ__________________________________________________
     |QRRRSSSSSSTTTUUUUUXYYZZ
     |PQQRSSSSSSSSSTUUUUUVVVWWWXXX
     |PPQQSSSSTTUUUVVWWWWXX
     |JPPPPPPQQSSSTTTTTTUUUUVVWWWWWWWWWXXX
210.0|JJJOOPPPPPPPQQSTTTTTTUUUUVVVWWWWWWXXXX___________________________________
     |HHJJJJJOOOOOOPSTTTUUVVVWWXXX
     |GGGHHHHHHHJJJJOOOOOOUVVV
     |GGGGGHHHHHHHJJOOOV
     |GGGGGGNNO
200.0|GJMNNNNNNNO______________________________________________________________
     |GJLMNNNNNNOO
     |FGKLLLMNNNNOO
     |DDDDEEEEEFFFGKLLLMNOO
     |CCCDDDDDDDDEEEEEEFFFFFFFKKKLLM
190.0|CCDDDDDEEEEFFFFFKKKKLMMM_________________________________________________
     |CCDDEEEEEFFKKKLLLLMMMMM
     |CCCCCEEKKKKLLLLMMMMM
     |CCCCKKKKKLMM
     |BCCKKK
180.0|ABBBBBBBCK_______________________________________________________________
     |AABBBBBBB
     |AAAAAABBBBB
     |AAAAAB
     |AAAA
170.0|_________________________________________________________________________
     |
     |
     |
     |
160.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.079
         1 1 1 1 1 1                                                  
       9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 7 8 8 9 9           9
       2 1 2 0 2 0 2 0 2 0 2 0 2 0 2 0 1 0 1 0 1 3 1 2 1 2           2
       9 2 6 9 4 8 2 9 4 7 2 8 2 6 0 4 8 4 8 2 7 1 4 8 2 6           7


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 9/26 ).

Intraday Chart



                 Risk Versus Opportunity Report
                ________________________________

                  HOX8    November Heating Oil

                      High Price:  2.459
                   Current Price:  2.326
                       Low Price:  2.260

                            Risk:  0.056
                     Opportunity:  0.113

                    (O/R) Ratio =  2.015


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 1
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range 0
Commitment of Traders + 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total + 1
Place 3 November Heating Oil on a Buy Watch with stoploss @ 7.36 below the get-in point when recent price is represented as "232.60".
____________________________________________________________________________________________________________________________________________R.S.