What are CFDs
- Commodities trading
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; however, its main use is for residential heating.
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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 homeowners can control temperatures with a 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 price 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 the contract.
Heating oil futures are used towards pricing jet fuel oil and diesel. The different seasonal demand for heating oil alters the price up or down, and 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 is also likely to change in inverse proportion.
This doesn’t mean that oil is worth less; it just means that the US dollar is worth more. Heating oil is traded in futures contract trades in units of 1,000 barrels, with a minimum fluctuation of $0.0001 per gallon.
Crude oil prices lead gas prices; however, the way crude oil is processed also plays a role in price increases. The seasonal changeover to summer-blend fuel 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 is evacuated from platforms and production stops, prices rise overall. Prices in energy commodities trading are highly volatile – even more than 10 years ago. Amongst the reasons can be found taxes, supply issues and anticipation by futures traders. Don’t forget to check out the oil contracts rollover dates to know when the current contracts expire.
Trading Conditions at Friedberg Direct:
- Min Trade Size 1000
- Increment: 0.001
- MT4 Symbol: HEATING_OIL
For investors looking to trade heating oil, Friedberg Direct has many benefits, including a wide range of educational tools to help you become a better trader, as well as a professional customer service team.
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 a minimal investment. Keep in mind that leverage can magnify your potential profits and at the same time magnify your losses.
- Short selling, which is a method based on the belief that an asset’s price will decline, enables the asset 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.
Join Friedberg Direct now and enjoy the benefits of trading with a regulated Canadian broker!
Heating Oil Trading 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 returns. Alternatively, if you believe the winter will be warmer than usual, a short position in heating oil could be better. 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 potentially good trade for those that appreciate volatility. Heating oil is also not correlated as strongly as crude oil, with moves in the U.S. dollar, 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 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.
These FAQs, comments/analysis do not take into consideration your individual personal circumstances and trading objectives. Therefore, they should not be considered as a personal recommendation or investment advice. They are intended for educational purposes only. Past performance is not indicative of future results. There is no guarantee that the contents or instructions will result in profits or not result in losses.