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Heating Oil Heads Lower as Demand Declines

David Becker
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Heating oil prices tumbled on Thursday declining for the 4th consecutive trading session following China’s announcement that its trade deficit grew and exports declined by 18%. Crude production continues to increase, while exports of products from the US have reached an all-time high. Hedge funds continued to reduce long positions in futures and options according to the latest industry report.

Petroleum prices were hit again on Wednesday after the Department of Energy released its weekly inventory estimate. According to the Energy Information Administration, U.S. commercial crude oil inventories increased by 6.2 million barrels from the previous week. At 370.0 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Gasoline inventories decreased by 5.2 million barrels last week, while distillate fuel inventories decreased by 0.5 million barrels last week.

On the demand from the EIA reported that total product demand over the last four-week period averaged 18.6 million barrels per day, up by 0.4% from the same period last year. Over the last four weeks, gasoline demand averaged 8.5 million barrels per day, down by 0.3% from the same period last year. Distillate fuel demand averaged over 3.6 million barrels per day over the last four weeks, down by 0.2% from the same period last year.

Despite the lackluster demand, gross exports of petroleum products from the United States reached 4.3 million barrels per day in December 2013, the first time exports exceeded 4 million barrels in a single month.

Hedge fund traders exited long position in futures and options while increasing similar short position. According to the latest commitment of traders report released by the CFTC for the week ending March 4, 2014 managed money reduced long position by 1100 contracts while increasing short positions in heating oil futures and options by 2500 contracts.

Heating oil futures prices moved lower and is testing support near an upward sloping trend line that connects the lows in November to the lows in January that creates support near 2.91.

Resistance is seen near the 10-day moving average at 3.00. Momentum is negative as the MACD (moving average convergence divergence) index generated a sell signal as the spread (the 12-day moving average minus the 26-day moving average) crossed below the 9-day moving average of the spread. The RSI is moving lower with price action reflecting accelerating negative momentum while printing near 41, which is on the lower end of the neutral range.

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