As its name implies, heating oil is used to heat boilers which radiate heat for homes and offices, mainly in the northeast. Heating oil comes from crude oil. If you have ever read the EIA Petroleum Status Report, you will notice that it give you the crude oil inventories and its distillates. The distillates are gasoline, kerosene, and heating oil. Heating oil is second to gasoline in the “cracking” of the crude oil, and accounts for 30% of that cracking.
Heating oil has a tendency to peak in October, just before winter hits. It then has a tendency to decline into the middle of February when it turns around and rises once again. It trades in .0001 increments and is worth $4.20 per tick. The contract controls 42,000 gallons of Heating oil.
The chart below is a daily chart of heating oil with a 3, 21, 65 SMA. Notice the peak of heating oil back in October, and since then it has been a sideways move with a double top around 3.0950. Notice that the 3 day average has clearly broken above the 21 and 65 day average. As long at heating oil remains above the 3.0220 area, and really above 3.0000, it will remain bullish. There are really two ways of entering at this point; either wait for a pull back to the 3.0300 area, or wait until you get 3 days closing above the double top at 3.0950.This will give it strength to move back to the October highs. The pullback may be the best of the two since the risk will be reduced and the possible gain will be greater. However, heating oil may not pullback, and the breakout will be the next opportunity. Good luck trading!
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