02-20-2019: April Heating Oil: Not Correlating with Other Products

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors


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5 Heating oil prices are showing some hesitation even though the heating season is not quite over yet and crude oil, gasoline, and natural gas prices are moderating. Heating oil is tending to go its own way uncharacteristically, as it usually correlates well with crude oil. Refinery outages play a role, as well as a supply / demand situation that reflects colder-than-average weather in the Northeast where most heating oil is used. Once longer-term contracts are executed, heating oil shows less tendency to be influenced by short-term situations, and the stage is set for the rest of the season. "No heat" calls can be prompted by weather sufficiently cold to cause freezing of fluids in boilers and the need for additives.

The Energy Information Agency (EIA) has been consistently revising projections for heating oil prices and demand downward in the face of recent data, causing heating oil prices to slow down a recent rise after coming down on correlation with other energy prices. But we are still in a seasonal effect of generally strengthening prices even as we approach the end of the heating season..

Intermarket Analysis

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

Parabolic Chart

April Heating Oil:

Parabolic Chart

Nirvana Chart

April Heating Oil:

Initial Chart

News Analysis

Refinery status showing fewer refineries operating are supporting heating oil prices. Fuel oil stocks at Shandong ports fell byi a surprising 24%. Gasoline prices are rising despite an oversupply situation there. Annual surpluses of products are narrowing during the lowest refinery operating rate in two years. Gasoline stocks held by the Amsterdam-Rotterdam-Antwerp (ARA) hub declined to the lowest since December and below a year ago levels. Continuing bogging down of trade talks between the U.S. and China are impacting fuel oil prices in a negative direction.

Connecticut, Maryland, Washington D.C., New York state and Pennsylvania are all locations that rank in the top for the most congested bottlenecks for trucks. The American Transportation Research Institute (ATRI) indicated this has impact on heating oil deliveries. Of heating oil used in this country, more than 85% is consumed in the Northeast, and 90% of that is delivered on a Coast Guard maintained waterway by ship, according to the Coast Guard. Coast Guard ice breakers are having an unusually difficult time keeping waterways open this year.

Below zero temperatures are causing some heating equipment failure in that cold heating oil has flow issues requiring use of additives. The cost of labor to restore equipment compromised by cold oil flow issues or the cost of the additives needed is significant. At minus 2 degrees, 10,000 customers in the Newport, Rhold Island area were without heat or hot water, both homes and businesses.

The traditional relationship betwen home heating oil costing less than gasoline has been upended this year. Maine oil dealers locked in supplies when prices were high, and the national demand for heating oil and its first cousin diesel fuel continues to be strong. Consumers look to bargain natural gas prices and falling crude oil prices, increased supplies of competing fuels, and anticipate heating oil will come down as well, but that is not happening. The heating oil market in Maine has barely budged. Even as statewide gasoline prices fell 40 cents per gallon recently, heating oil prices have gone in the other direction. U.S. distillate inventories are 10% lower than the five-year average and being met by colder-than-normal weather. November was the coldest month in four years.

Pressure on ocean-going shippers to install exhaust scrubbers on their vessels or swith to low-sulfur diesel fuel wil further squeeze inventories.

The U.S. EIA predicted that home heating oil prices would be 20% higher than they were last winter. That compares to a 5% in natural gas and a 3% increase in electric heating costs. A recent revision by the EIA dropped their target to 14% higher this year. Supplies are the biggest driver of prices.

A very significant drop in Brent crude oil prices of $0.23 per gallon (U.S.) is projected by some analysts for 2019. That would compare to about $1.50/gallon now. The retail margin is a very small percentage of this change.

A number of analysts like Morgan Stanley have been slashing oil price forecasts for 2019. They see $68.50/barrel for 2019.

All-time high heating oil prices were $4.47/barrel in 1980, when crude oil prices hit $144.29/barrel. Key factors then were cutting off supplies for Iraq and Venezuela due to saboteurs. If October through March represents the peak heating season, it is suggested historically that the best time to buy heating oil is in October. Topping off a home heating oil tank in late spring or early summer seems like the best idea. Bulk ordering also helps (contracting early for later deliveries).

November often sees the most volatilitiy in energy prices. The more sanctions are in place for countries like Iran, the harder it will be to heat homes in the winter. The bulk of projections and news on heating oil comes out of months of October and November. At that time, dire predictions for heating oil shortages were being put out there. Heating oil price jumps were projected to be the highest on the energy grid. Oil, coal, and nuclear sources were leaving the grid.

Higher heating oil demand has been seen across the grid from supplier refineries such as Valero, Marathon, Tesoro, and Phillips 66. There is usually a correlation between heating oil prices and crude oil prices. Kiplinger, in a late report sees crude oil prices grinding higher. OPEC and other producers are expected to curb output to bring global supply into better balance with demand. Kiplinger doesn't expect crude oil prices to go lower and expects them to trend higher, especiallyi as summer approaches. Reduced output and stronger demand will be the key.

Point & Figure Chart

250.0|                                                                  T  2/15
     | NYM - Apr-19 Heating Oil #2, 42000 gal, c/g Cm.=0.01  Lim.= 0.4
     |                         X
     |                         XO
     |                         XO
     |                     X   XO
     |                     XOX XO
     |O                    XOXOXO
     |O                X   XO O O
     |O                XO  X    O
     |O                XO  X    OX
     |O                XOX X    OX
     |OX               XOXOX    OX
     |OXO        X     XO O     OX
     |OXO        XO    X        OX
     |OXO  X     XO    X        OX
     |OXO  XOX XOXOX   X        O
     |  O  XOXO OXO OXOX
     |  O  XOX      O OX
     |  OX XO         OX
     |  OXOX          OX
     |  OXOX          O
     |  OXO
     |  OX
     |  OX
     |  OX
     |  OX
     |  OX
     |  OX
     |  O
               111              1
The above chart is giving a conventional sell signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical high and a seasonal up period.

Cyclicals Cyclicals Seasonals

Internal Program

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

Internal Printout 1

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


Third System Confirmation

Our third system is working on a long-term buy 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


The point value is $420. Initial margin on a single contract is $2,255. Use of options is advised.

Historic Range

Scale trade buyers are just marginally entering the market for the long term 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. Commercials with the best track record are getting increasingly-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 downtrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Heating Oil May 195 Call and Sell (1) Heating Oil May 2.02 Call @ 0.0460 to the buy side or better.

o 1 o 2 o 5

o 3

o 4

Calendar Spread

What the Apr. - Jun. 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 +0.50 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.80 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the buy the far, sell the near point.

Level Table:

Level Table

The path of least resistance is up.
250.0|                                                                  T  2/15
 NYM - Apr-19 Heating Oil #2, 42000 gal, c/g Cm.=0.01  Lim.= 0.4
     |CCCCCCCCDU[   <<<
150.0|-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=-0.268
                                       1 1 1 1 1 1                    
       2 3 3 4 4 5 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 1 1 1 2           2
       2 0 2 0 1 0 1 3 1 2 1 2 1 2 1 2 0 2 0 1 0 1 0 1 3 1           1
       1 6 0 4 8 2 6 1 4 8 3 7 0 4 0 4 8 2 5 9 4 8 3 7 1 4           5

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 7/11 ).

Intraday Chart

                 Risk Versus Opportunity Report

                   HOJ9    April Heating Oil

                      High Price:  218.3
                   Current Price:  201.7
                       Low Price:  193.5

                            Risk:  0.080
                     Opportunity:  0.161

                    (O/R) Ratio =  2.024

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 + 1
Commitment of Traders + 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total + 6
Place 6 April Heating Oil on a Buy Watch with stoploss @ 7.84 below the get-in point when recent price is represented as "201.70".