Heating Oil: The Next Trending Commodity?

With the Polar Vortex affecting the Midwest and a series of named storms along the East Coast, natural gas prices have been surging. In fact, prices began to rise in 2012, paused briefly in 2013, and have since experienced a remarkable increase of over 85% since November, aside from a slight pullback this week. This surge is partly attributable to changing weather patterns, which have prompted homeowners in the Northeast to shift from heating oil to natural gas over the past five years.

NAT GAS Weekly

However, this trend may be about to change. A recent Petroleum Report highlighted that strong demand for natural gas heating in the Northeast is leading energy producers to consider switching back to heating oil due to rising natural gas prices. This shift could have near-term implications for farm diesel pricing. Traditionally, the East Coast has relied heavily on natural gas for heating, but the U.S. Energy Information Administration indicates that a change may be underway this year.

In light of the increased demand for natural gas, producers may revert to heating oil in response to escalating natural gas spot prices. This could subsequently impact diesel pricing as well.

As a technical trader, this leads me to examine the heating oil market. The chart indicates that there has been little activity over the last three years. While this stagnation could persist for some time, the emergence of a potential catalyst suggests that a breakout could be imminent, prompting a need for preparation.

The recent consolidation hints that a breakout to the upside could target heating oil prices at approximately 4.80. From the current level of around 3.0, this presents an attractive opportunity, especially if a trigger point is set at 3.20 for a channel break. Are you prepared?

Heating Oil Weekly

Disclosure: The insights in this post reflect my personal opinions and do not constitute a recommendation for any specific security or investment. I or my associates may have positions or interests in the mentioned securities; for a complete disclaimer, please refer to my Disclaimer page.

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