As its name suggests, Heating Oil is almost exclusively used as a flammable, liquid petroleum product for furnaces and boilers. Heating Oil is a heavy fuel oil that is derived from Crude Oil. Heating Oil, also known as No. 2 fuel oil, accounts for about 25% of the yield from a barrel of Crude Oil. That is the second largest “cut” after gasoline. The price to consumers of home Heating Oil is generally comprised of 42% for Crude Oil, 12% for refining costs, and 46% for marketing and distribution costs (Source: EIA’s Petroleum Marketing Monthly, 2001). Generally, a $1 increase in the price of Crude Oil translates into a 2.5-cent per gallon rise in Heating Oil. Because of this, Heating Oil prices are highly correlated with Crude Oil prices, although Heating Oil prices are also subject to swift supply and demand shifts due to weather changes or refinery shutdowns.
The primary use for Heating Oil is for residential heating. In the U.S., approximately 8.1 million households use Heating Oil as their main heating fuel. Most of the demand for Heating Oil occurs from October through March. The Northeast region, which includes the New England and the Central Atlantic States, is most reliant on Heating Oil. This region consumes approximately 70% of U.S. Heating Oil. However, demand for Heating Oil has been dropping as households switch to a more convenient heating source like Natural Gas. In fact, demand for Heating Oil is down by about 10 billion gallons/year from its peak use in 1976 (Source: American Petroleum Institute).
Refineries produce approximately 85% of U.S. Heating Oil as part of the “distillate fuel oil” product family, which includes Heating Oil and diesel fuel. The remainder of U.S. Heating Oil is imported from Canada, the Virgin Islands, and Venezuela.
Heating Oil futures and options previously traded on the New York Mercantile Exchange (NYMEX) until 2008 when the CME group acquired NYMEX Holdings. Heating Oil now trades on Globex. The market opens at 5:00 PM CT and closes the following day at 4:00 PM CT, Sunday through Friday. The market closes Friday afternoon and re-opens Sunday evening.
Additional Heating Oil contracts trade on CME Clear Port, a set of flexible clearing services open to OTC market participants, as well as on the Intercontinental Exchange (ICE) after it acquired the International Petroleum Exchange (IPE) in 2001.
One contract unit for Heating Oil futures is 42,000 gallons. The most common contract symbol is HO.
The futures contract is priced in U.S. dollars and cents per gallon. The futures contract price quotation is $0.0001 per gallon. The previous settlement price for March 2014 Heating Oil (January 09, 2014) was 2.9054. The next price movement or “tick” after 2.9054 downward is 2.9053, followed by 2.9052. Each tick is $4.20. A full cent move, from 2.9054 to 2.8954 for example, is $420.
The performance bond or initial margin requirement to initiate one futures contract is $5,940 (as of November 11, 2015). To control that futures contract going forward the maintenance margin becomes $5,400 (as of November 11, 2015).
At the commencement of each trading day, there is a price fluctuation limit in effect for each contract month of the Heating Oil futures contract of $0.25 per gallon above or below the previous day’s settlement price for such contract month. If a market for any of the first three (3) contract months is bid or offered at the upper or lower price fluctuation limit, as applicable, on CME Globex it will be considered a Triggering Event which will halt trading for a five (5) minute period in all contract months of the Heating Oil futures contract, as well as all contract months in all products cited in the Associated Products Appendix of rule 150.07.
The futures contract month listings are the current year plus three years plus one month.
Trading in a current delivery month shall cease on the last business day of the month preceding the delivery month. The Last Trading Day for the March 2014 Heating Oil futures contract is February 28, for example.
Be aware that the Energy Information Administration (EIA) typically releases a weekly Energy Stocks report on Wednesdays at 9:30 AM CT.
Visit www.danielstrading.com for additional contract specifications and market information regarding Heating Oil futures market.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.