Calm Before the Winter Storm?
Oil futures continue to cling to the $80 per barrel level, despite an expected increase in U.S. Crude inventories last week. Despite being several dollars off all-time highs, Crude prices are still up over 15% the past two months, as a sell-off in the U.S. Dollar has made commodities priced in Dollars more attractive to foreign buyers. In addition, there is still a “weather” premium built into Oil futures, as the peak hurricane season nears an end. So why do Oil prices continue to hover at such lofty levels? One reason is the fear that Heating Oil stocks will remain tight as we near the start of the winter heating season. Traders expect Distillate stocks – which include Heating Oil – to have fallen by 750,000 barrels last week, as refinery rates continue to remain below average. With Heating Oil stocks well below last year’s totals, the Energy Department announced that it expects home Heating Oil prices to rise by 16% this year. If true, it may be a long cold winter for energy bears!
Looking at the daily chart for November Heating Oil, we notice prices holding above both the 50- and 100-day moving averages. However, it appears that a trading range may be forming, with the 50-day moving average at 2.1300 acting as solid support and the 20-day moving average near the 2.2200 area providing resistance. The 14-day RSI backs up this assumption, with a neutral reading of 44.84. In early trade, November Heating Oil is trading at 2.1820, down 0.0020.
Mike Zarembski, Senior Commodity Analyst
