09-25-2017: November Heating Oil: Assessing Hurricane Effects

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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
Calend Spread

Level Table
Other Factors
Recommendation

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6

7

1     5

3     4


Introduction

Analysts disagree on the effects of recent hurricanes upon availability of fuels. Some refineries are out of service but many remain on line. A convincing argument for a glut of heating oil combines the fact that the previous two seasons were very mild coupled with damages to ports in the Caribbean which prevent shipments of heating oil from leaving Gulf Coast ports and causing some pile up of refined distillates there that would normally go overseas. An almost equally convincing argument is rising heating oil fuel prices in New England, perhaps due to speculation that hurricane damage to ports will cause a shortage there, coupled with a prospect for future hurricane damage along the East Coast during this "busy" season. If Hurricane Jose or ones like it come close enough to the East Coast, it could disrupt shipments sufficiently to raise prices of heating oil.

It all seems to come down to weather events and the fact that this season is more active than most with prospects for a cold, clammy winter in the strategic Northeast. As far as damaged ports go, shipments that would normally go to the Caribbean could probably find a home in Asia, Europe, or elsewhere.


Intermarket Analysis

We fed Heating Oil, Crude Oil, and Gasoline 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

Twenty oil refineries have been significantly impacted by Hurricane Harvey. Fifteen are at or close to normal operating rates but five are not. Florida's retail gas outlets do not seem to have any fuel shortages with few exceptions less than two weeks after Hurricane Irma. Vechicle use will continue to recover in Texas and Florida, but the North American driving season tends to wind down in autumn. However, there are increasing chances that a La Nina weather event will arrive during the North American winter. This wold bring colder and wetter conditions to the Midwest and Northeastern U.S., which would stimulate demand for heating oil. OPEC oil producers may have more than usual difficulty arriving at agreement as to policy at an upcoming meeting in Vienna.

In Maine, the Governor's Energy Office says heating oil prices are on the rise. The statewide average cash price was $2.19/gallon this past week. Kerosene was also up 28 cents to $2.86/gallon. The Energy Office says the prices are due in part to the energy disruption in the petroleum industry caused by Hurricane Harvey last month. The state found the highest heating oil price was $2.42 while the lowest was $.1.95. Northern Maine had a higher average of $2.35/gallon.

Hurricanes Irma and Maria damaged several fuel storage terminals in the Caribbean region. Fuel sent there coming from the U.S. Atlantic Coast, Europe, and Latin America is then sent to the Gulf Coast, Panama, and Asia. After the damage, a lot of the fuel oil originally sent to Caribbean terminals will likely be re-routed to the Gulf Coast, where there is already more than enough fuel oil. This could add to a swelling glut of fuel oil. The glut was partially caused by increased fuel oil productdion, with a fuel oil yield from Gulf Coast refineries at 3.8%, the highest since the beginning of 2014. Currently fuel oil futures prices are in normal backwardizartion anyway. The spot is at a premium of $1.80/barrel compared to October.

London stocks of distillate fuel have been trending downwards all year, and now look tight following disruption to major refineries caused by Hurricane Harvey. Distillates are still sed as heating oil for some homes, schools, and commercial buildings especially in the Northeast. This source of seasonal demand has become less important in recent years. By the second week of February, 2017, distillate stocks stood at 170 million barrels, 8 million higher than at the same point in 2016 and 33 million above the 10-year average. But a recovery in freight, and a boom in oil and gas drilling, and record exports to Latin America and other markets have steadily whittled away at the surplus.

Hedge funds have amassed a net long position in heating oil futures and options equivalent to 46 million barrels, anticipating a further rise in prices. There is expectation that U.S. diesel exports will be cut in the coming months. U.S. distillate prices are already rising to reduce exports and encourage refineries in the U.S. and elsewhere to ramp up production. The last two winters have been excpetionally mild in the U.S. which has limited heating oil demand. But if temperatures in the forthcoming winter are closer to the long-term average, distillate stocks could become very tight without very high refining runs.

According to a CBS news report, unlike gasoline prices, Hurricane Harvey is not expected to cause heating oil prices to soar across the country. There is believed to be already a huge supply of heating oil in the Northeast. At one point, temperatures last winter in New York City at 70 degrees were warmer than the temperature in Los Angeles on the same day. But if another hurricane hits the East Coast, the situation could change dramatically on heating oil availability.

At current prices, the average household spends a little under $2,500/year on home heating oil.

ABC News disagrees with CBS completely and says, "Northeast braces for home heating oil increaes," which it believes could top $4.00/gallon. Northboro Oil Co. looks for a typical household delivery to climb from $500 to $850 this winter. Said owner, "It's going to be a real problem this winter for everyone unless something changes." To ease a perceived energy crunch, some legislators are pushing legislation to give businesses hurt by high heating oil costs access to credit through the Small Business Administration disaster loan programs. They also want to help more families by expanding government home heating aid thorugh the Low Income Home Energy Assistance Program. Millions of poor and elderly people on fixed incomes rely on heating assistance to pay their bills and keep from freezing.

Suppliers of heating oil generally want dealers toi pay their bills within 10 days.

Heating oil and propane markets serve approximately 30% of the residential space heating market in the Northeast. Market share is higher in New England where the fiture could be as high as 45% of homes or about 2.5 million residences. "Bioheat" or blended fuel offers some hope for lowering heating oil costs by using Bioheat Blended Fuel in place of standard Heating OIl.

A Texas Railroad Commissioner advises not to stand in line for fuel oil because there is plenty available flowing into North Texas and long lines are the result of a "ripple effect" of everyone trying to get all they can at the same time. He advises to wait two or three days.

Our assessment of the news is that the heating oil picture is drastically different in different parts of the country, but New England determines, having the most effect.


Point & Figure Chart

201.0I                                                                  T  9/22
     I NYM - Nov-17 Heating Oil #2, 42000 gal, c/g Cm.=0.01  Lim.= 0.4
     I
     I
     I
191.0I_________________________________________________________________________
     I
     I                                         X
     I                                         XO
     I                                       X XO
181.0I_______________________________________XOXO______________________________
     I                                       XOXOX         X
     I                       X           X   XO OXO        X
     I                       XO          XO  X  OXO        X
     I                       XOX X       XO  X  O OX       X
171.0I_____________________X_XOXOXO______XO__X____OXO______X___________________
     I                     XOXOXOXOX     XO  X    OXO      X
     I                     XOXOXOXOXO    XOX X    OXOX     X
     I                     XO OXOXOXO    XOXOX    OXOX     X
     I                     X  O O OXO  X XOXOX    OXOX   X X
161.0I_____________________X______OXOX_XOXOXOX____OXOX___XOX___________________
     I                   X X      OXOXOXOXOXO     OXOX   XOX
     I                   XOX      OXOXOXOXOX      O OX   XOX
     I                   XOX      OXO O OXOX        OX   XOX
     I                   XOX      OX    O OX        OXO  XO
151.0I___________________XOX______OX______O_________OXO__X_____________________
     I                   XO       OX                OXOX X
     I               X X X        OX                OXOXOX
     I               XOXOX        OX                O OXOX
     I             X XOXOX        OX                  OXO
141.0I_____________XOXOXOX________O___________________OX_______________________
     I             XOXOXOX                            OX
     I             XO OXO                             OX
     IO            X  OX                              O
     IO            X  OX
131.0IO______X_X_X_X__OX_______________________________________________________
     IO    X XOXOXOX  OX
     IO    XOXOXOXOX  OX
     IOX   XOXOXOXOX  O
     IOXO  XOXOXO O
121.0IOXO__XOXOX_______________________________________________________________
     IO OX XO OX
     I  OXOX  O
     I  OXOX
     I  OXOX
111.0I__OXO____________________________________________________________________
     I  OX
     I  OX
     I  OX
     I  OX
101.0I__OX_____________________________________________________________________
     I  OX
     I  OX
     I  OX
     I  O
 91.0I_________________________________________________________________________
     I
     I
     I
     I
 81.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
      1                                   111111
      211111222222223334445555666678899999011122111345567788
      100222000111121120110112122200300012112312011310220112
      046267138268965646593195304954166842765057328198687854
The above chart is giving a conventional buy signal.


Cyclical and Seasonal Factors

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

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "%R". It is giving a buy signal.

Internal Printout 1 Internal Printout 2

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

Results


Third System Confirmation

Our third system is working on a long-term 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 $4,290. 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 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 the current uptrend remains intactd 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 December 176 Put and Sell (1) Heating Oil December 179 Put @ 1.33 to the sell side or better.


o 1 o 2 o 3 0 4 o 5


Calendar Spread

What the Nov. - Mar. 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 -0.40 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at +4.90 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be approaching the buy the far, sell the near point.




Here is a daily end-of-day calendar spread chart for November vs. March with decimals adjusted to conform to exchange's (data does not include bid/ask spread of 0.0071):


Level Table:

Level Table

The path of least resistance is up.
193.0|                                                                  T  9/22
 NYM - Nov-17 Heating Oil #2, 42000 gal, c/g Cm.=0.01  Lim.= 0.4
     |
     |
     |
188.0|G________________________________________________________________________
     |G
     |G
     |GGG
     |FGGGGG
183.0|FGGGGGH__________________________________________________________________
     |FFFGGGHH
     |FFFFFGGGGGHHHHH
     |FFFFFGGGGGGGHHHHHH[[
     |EEFFFFFFGGGGGHHHHHHZ[[   <<<
178.0|BEEFFFFFGGGHHHHHHKZZZZ___________________________________________________
     |BBEEFFFFFFGGHHHHHHJKKLZZZZZZZ
     |ABBBBEEFFFFFGHHHHHHJJJJJKKKKKLLZZZZZZ
     |AABBBBBBEFFFHHHHJJJJJJJKKKKKKLLLYZZZZZZZ
     |AABBBBBBBBCCEFHHHJJJJJJJJJJKKKKKKKLLLLLLLOYYZZZZ
173.0|AABBBBBBCCCCCEHHHJJJJJJJJJKKKKKKKKLLLLLLLLOOOYYYYZZZZ____________________
     |AABBBBBBCCCCCCEEHHHJJJJJKKKKKLLLLLLOOOPYYYYZZZ
     |AABBBBBCCCCCCEEJJJKKKKLLLLLLMOOOPPYYYZZ
     |AABBCCCEEKKLLLLLMMOPPYYY
     |AAAACCEEEKLLMMMOOOPPRYY
168.0|AAACEEELLMMMOOPRRRYYY____________________________________________________
     |AACEEELMMMOOOPRRRRYY
     |AACEEEEEELMMMOOPPPRRRYY
     |AACCCEEEEEEMMOOOPPPRRYY
     |AACCEEEEEMMOOOPPRRWWXYY
163.0|ACEEEEEMMNOOPPRRWWWXYY___________________________________________________
     |ACEEEEEMNOPPPRRWWWWWXXYYYY
     |AACEEEEEMMNNNPPPRRRRWWWWWWWWXXXXYYYY
     |AACCDEEEEEMMMNNNPPPRRRWWWWWWXXXXYYY
     |AAACCDDEEEEEMMMMNNNNPPRRRRWWWWXXXXXYYY
158.0|AAACCDDDDEEMMMMMNNNNPPRRRRWWXXXXXXYY_____________________________________
     |AAADDDDDDDDEMMNNNNNNNPPQQRRRRWWXXXXY
     |AAADDDDDDDDDEMNNNNPQQQQRSWXXXXXY
     |AADDDDDMNNQQQQQRSVVWXXXXXY
     |DDDQQQQRSSVVXXXX
153.0|DDDQQQQRSSVVX____________________________________________________________
     |DDDQQQQRSSVVVVX
     |DDDQQQQQSSVVV
     |DQQQQSSUVVVVV
     |QQSSUUVVVVVV
148.0|QQSSSUUUVVVVV____________________________________________________________
     |QQSSUUUVVVVV
     |QSSUUUUUVV
     |QSSSSUUUUUVV
     |QSSSSTUUUUUV
143.0|SSSSTTUUUUU______________________________________________________________
     |SSSSTTTTUUUUU
     |SSSSTTTTUU
     |SSSTTTTTUU
     |TTTUU
138.0|TTU______________________________________________________________________
     |TTTTU
     |TTTT
     |TTTT
     |T
133.0|-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= 0.415
         1 1 1 1 1 1                                                  
       9 0 0 1 1 2 2 1 1 2 2 3 3 3 4 5 5 5 6 6 7 7 8 8 9 9           9
       2 0 2 0 1 0 1 0 1 0 1 0 1 3 1 0 1 3 1 2 1 2 0 2 0 2           2
       6 7 1 4 8 5 9 4 9 2 6 3 7 1 7 1 5 0 3 7 2 6 9 3 7 1           2


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 9/22 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                  HOX7    November Heating Oil

                      High Price:  1.963
                   Current Price:  1.809
                       Low Price:  1.733

                            Risk:  0.082
                     Opportunity:  0.167

                    (O/R) Ratio =  2.026


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 + 3
Place 3 November Heating Oil on a Buy Watch with stoploss @ -7.36 below the get-in point when recent price is represented as "180.90".
____________________________________________________________________________________________________________________________________________R.S.