Learn About Futures Insider for December 8, 2011:Heating Oil (Part 2)

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Part 1: http://www.italkcash.com/forum/commodities/310292-learn-about-futures-insider-december-8-2011-heating-oil-part-1-a.html#post422096


*Data courtesy of EIA

Price highlights for this market include:

During the war years, the focus was on providing gasoline for the military. This led to rationing of other distillate products, especially once petroleum supplies from North Africa were disrupted. Heating oil was strictly rationed, with some commercial buildings in 1943 warned of being heatless and the focus fell to providing heat to homes with children. The 1970s were also an active time for heating oil and other petroleum prices as the energy crisis built. In 1973, the average price of heating oil was between 28 and 30 cents per gallon. At the same time, Nixon was encouraging rationing of the fuel oil. In 1975, a 60 cent per barrel import tariff was dropped in an effort to save consumers about 1.5 cents per gallon on foreign fuel. By 1979, the average price of home heating oil had reached 90 cents per gallon.
Domestic gasoline demand fell in 1980, but supply and price controls via OPEC members helped keep heating oil futures prices well above 50 cents per gallon through the early part of the decade. As early as August of 1985, analysts were beginning to predict a drop in fuel prices stemming from an increase in imports from Canada, Italy, Romania, and China.
1986 saw a steep decline in heating oil prices, dropping below 50 cents per gallon amid a collapse in crude oil prices.
The Iraqi invasion of Kuwait and subsequent Gulf War helped spike heating oil prices again in 1990. After jumping above $1 per gallon, prices would retreat back towards 50 cents a gallon. In the late 1990s, prices would see pressure from what some analysts termed an "oversupply" of petroleum, leading futures prices down to a record low around 29 cents per gallon.
In 2000, supply concerns appeared on the scene again, spiking prices above $1 per gallon. Prices retreated back towards 50 cents a gallon less than a year later, only to spike again in 2003, this time hitting $1.50 per gallon. Cold weather and a Venezuelan oil strike helped propel prices higher.
Prices continued to trend higher through the early 2000s, finally breaking above $2 per gallon following the disruptions to refineries after Hurricane Katrina. Prices would briefly dip back below $1.50 per gallon before heading higher.
In 2008, a combination of market forces - including record high crude oil prices - helped heating oil futures hit a record price high of more than $4.15 per gallon. Like other markets at the time, a combination of demand concerns on economic slowdown weighed on prices, sending them back below $1.50 per gallon by the end of the year and into 2009.
In 2011, prices would strengthen again, heading back above $3 per gallon.

Key terms for this market include:

Distillates - liquid products concentrated or extracted by distillation, a physical separation process based on different volatilities in boiling.

Fuel Oil #2 - refers to the specific liquid petroleum product that is used in residential and commercial situations for furnaces or boilers to generate heat - heating oil.

Key Uses

Heating oil is used primarily as a fuel to heat residential homes; mainly in New England and the Central Atlantic States. The following chart illustrates the residential use sales by thousand gallons, roughly divided by region.



*Data courtesy of EIA

Key Concerns

Crude Oil Prices – Since a large component of pricing heating oil is based on the price of the crude oil, fluctuations in one may incur changes in the other.

Seasonal Demand – Price volatility may change based on the perceived consumer needs for winter heating

Weather – Since a large percentage of the consumer base for residential heating oil is in the Central and North Atlantic states, any significant cold weather or lack thereof may contribute to price volatility. Also, hurricanes along the Gulf Coast can impact production at refineries located in that region or affect terminals receiving imports.

Refining – Any changes or disruptions to refinery production is worth noting including scheduled or unscheduled shutdowns.

Industry Reports – Like crude oil and gasoline, heating oil inventories can be of significance as any unexpected increases or decreases in supply may affect price. Volatility may also increase around the release of these reports, including the weekly API and EIA reports.

Environmental Concerns – Changes to or perceived issues regarding the emissions from residential oil burners may also be worth noting.