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Heating Oil Fundamentals

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Basic Fundamentals

What Market Fundamentals Can Affect The Heating Oil Futures?

In free market economies, supply and demand is the primary enabler for price movement. Any outside forces that affect supply and demand eventually affect prices. When you are considering a trade in the crude oil market some of the basic fundamentals that you should consider are:

1. Crude Oil Heating oil is a by-product of crude oil. Refined product prices typically move together over time. Refined product prices respond to movements in crude oil spot prices but generally lag behind it.

2. Refinery Capacity In the United States there hasn't been a new refinery built since 1976. Currently, US refinery utilization averages around 90%. That leaves very little extra capacity to compensate for outages. Therefore, during peak demand months, unexpected refinery outages can result in local supply disruptions that result in temporary price surges.

3. Weather An unexpectedly long and cold winter in the Northeast can increase the demand for heating oil, causing prices to move higher. However, oil companies begin to ramp up production of heating oil before the winter season begins to ensure ample supplies of heating oil to meet the expected winter demand. (Beware of brokerage firms that try to sell you on far out of the money call options as a sure bet.)

4. Inventory Reports There are two major weekly inventory reports that are helpful in your research and trading of heating oil futures and heating oil options. The American Petroleum Institute publishes their report on Tuesdays, and the US Energy Information Administration publishes their report on Wednesdays. These reports are very closely watched. They summarize crude oil, heating oil and other refined product inventories, as well as refinery utilizations rates in the United States.

5. Diesel Demand Government subsidies have increased the demand for diesel fuel in Eurpoe. Since heating oil and diesel are both distillate fuels, incresed demand for diesel fuel can push up the price of heating oil.

These are just some of the basic fundamentals to keep in mind when you are considering a trade in the heating oil market. Therefore, before opening up a commodity account to trade heating oil you should consult with a licensed commodity broker that follows the heating oil market to discuss investment strategies.

Click here to contact a commodities broker with experience in the heating oil market.

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