What is Heating Oil?
Heating Oil is a liquid petroleum product, refined from crude oil, which has several uses such as furnaces, boilers in buildings and fuel oil, and its main use is for residential heating. This is the most important alternative energy source for homes that do not have the ability to heat their homes with natural gas. Its actual abbreviation is HHO.
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The use of heating oil became important when the oil burner was invented in the 1920’s. It replaced coal for indoor heating, since it was cheaper, easier to handle, and better for the environment. Over the past number of years heating oil has become even more efficient, safer, and cleaner. Home heating oil provides an even heat and the homeowners can control temperatures with the thermostat. Usually heating oil is delivered by a tank truck to commercial and residential buildings and stored in tanks.
Heating oil prices have become so reasonable that sales in the industry of oil heating businesses in the U.S are over $16 billion.
Heating Oil Prices
The prices of heating oil can be affected by many different factors. To reduce the risk of price fluctuations producers can use what is called a short hedge. This sets a fixed selling price for the heating oil to be produced to be set in contract.
Heating oil futures are used towards prices of jet fuel oil and diesel. The different seasonal demands for the heating oil alters the price up or down, and the prices tend to rise in the spring.
The US dollar and different commodities have an inverse correlation. Oil contracts are negotiated and settled in USD. Therefore, when the USD value changes, the value of the commodity also is also likely to change. It doesn’t mean that oil is worth less, it just means that the US dollar is worth more. Heating oil in futures contract trades in units of 1,000 barrels, minimum fluctuation of $0.0001 per gallon.
Crude oil prices lead the gas prices; however, the way crude oil is processed also plays a role in the price increases. The seasonal changeover to summer-blend duel is what leads the way for gasoline prices to rise.
The U.S Environment Protection Agency defines April to June as the “Transition season” for fuel production. Refineries lead the way for this switch in March and April. The blend in gasoline is different in the winter months and in the summer months.
Natural disasters such as hurricane Harvey can heavily affect heating oil prices. In situations where staff are evacuated from all platforms in the gulf and production stops, prices rise overall. Prices are highly volatile even more than 10 years ago, some of the reasons can be taxes, supply issues and anticipation by futures traders.
Trading Conditions at AvaTrade:
Min Trade Size 1000
MT4 Symbol: HEATING_OIL
For investors looking to trade heating oil, AvaTrade has many benefits including an outstanding welcome bonus to get you started. We have a wide range of educational tools to help you become a better trader. We have a wide range of educational tools to help you become a better trader, as well as a professional customer service team. Charts and graphs are sent to you daily with our market analysis and Trading Central.
Here are a few more advantages:
- Leveraged trading, meaning the opportunity of borrowing funds from the broker for investing. This allows a trader to open a much larger position with minimal investment. Keep in mind that leverage can magnify your potential profits and at the same time can magnify your losses.
- Automated trading, refers to using systems that can perform recurring tasks at high speed. This software creates automatic orders and submits them to a market exchange. It can also replicate positions of experienced traders with a proven success record.
- Short selling, which is a method based on the belief that an asset’s price will decline, which would allow it to be bought back at the lower price in order to profit. “Sell high, buy low” defines short selling which allows the trader to trade and benefit on bearish markets.
Heating Oil Trading Main FAQs
- Why trade heating oil?
Heating oil trading can be a direct play on weather patterns. If you expect a colder than usual winter in the northern climates then buying heating oil might deliver good profits. Alternatively if you believe the winter will be warmer than usual a short position in heating oil could be profitable. Heating oil prices also tend to be more volatile than crude oil, which can be useful for traders. In some cases a trader may just want to try a different market.
- Is heating oil a better trade compared with crude oil?
Heating oil is made from crude oil so the price of heating oil tends to be correlated with crude oil to some degree. However heating oil is also more volatile as it responds to refinery capacity and weather patterns more strongly than crude oil will. This can make heating oil a good trade for those that appreciate volatility. Heating oil is also not correlated as strongly with moves in the U.S. dollar than crude oil, which can be useful if you believe the U.S. dollar is going to become considerably stronger.
- What is the best strategy for trading heating oil?
Because heating oil tends to see consolidation during summer months, followed by strong trends in one direction or another a breakout swing trading system is an excellent choice when trading heating oil. Basically we want a strategy that looks for prices breaking out of range-bound conditions. Bollinger Bands can work well for this type of strategy, as can oscillators. A combination of both often works best as one confirms the other. Traders may also want to pair the seasonal tendency of heating oil to look for these breakout moves.
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