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Heat Could Drag Crude Oil Lower

David Becker
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Heating oil prices moved lower for a second straight trading session after surging higher on Monday as tensions in Ukraine exploded. The pullback of Russian troops from Crimea on Tuesday, eliminated the risk premium of a disruption which generated headwinds for the petroleum complex. Hedge fund traders added to long position in futures and options according to the latest industry report.

Inventory data released by the American Petroleum Institute showed that draws in distillates and gasoline were less than expected. The API reported Tuesday an increase of 1.2 million barrels in crude supplies for the week ended February 28, 2014. The climb was a bit less than expected, as analysts surveyed had forecast a climb of 1.5 million barrels in crude supplies. The API reported gasoline stockpiles fell 1.2 million barrels, while distillate supplies declined 270,000 barrels. Analysts were looking for gasoline and distillate supplies to decline by 1.5 million barrels each.
Hedge fund traders reduced positions in heating oil according to the latest commitment of traders report released for the date ending February 25, 2014. According to the CFTC managed money increased long futures and options position by 7200 contracts while reducing short position by approximately 3500 contracts.

Heating oil prices moved lower and is poised to test an upward sloping trend line that connects the low in early February to the lows in late February. This coincides with the 40-day moving average near 2.98. Momentum is negative with the MACD printing in negative territory after generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

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