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Heatingoil

Cracking the Crack SpreadThe ‘crack spread’ is a term used in the oil industry that refers to the differential between the price of crude oil and the petroleum products extracted from it, such as gasoline and heating oil. The name comes from the process of 'cracking' crude oil in a refinery to produce these valuable products. The spread serves as a measure of refining margin, or profitability, for oil refineries. When the prices of petroleum products are high relative to the price of crude oil, the crack spread widens, and refining margins increase, making it profitable for refineries. Conversely, when the price of crude oil is high relative to the products, the crack spread narrows, and refining can become less profitable or even unprofitable. The crack spread is typically expressed in terms of the ratio between the input (crude oil) and the outputs (refined products). For example, a 3:2:1 crack spread assumes that three barrels of crude oil can produce two barrels of gasoline and one barrel of heating oil. In the futures market, the crack spread can be traded by buying crude oil futures and selling futures in its products, thus locking in the margin between input and output prices. This can serve as a form of hedging against price risk for those involved in the oil industry. This week, we will delve into various factors influencing the crack spread and evaluate their potential impact on the current spread; Geopolitical Concerns SPR Refill One of the key points mentioned when we last covered oil was the potential refills of the SPR which are still pending as an attempt to purchase up to 6 million barrels was abandoned at the last minute. As the drawdown in the SPR continues, it seems inevitable that the Biden administration will have to replenish the reserve, likely pushing oil prices higher due to increased demand. Russia Ukraine escalation The simmering tensions of the Russia-Ukraine conflict leave us wondering if the price of crude oil might escalate further. The ongoing conflict focuses on a key port in the Black Sea. Consequently, this could potentially impact up to 20% of oil exports from Russia. Although most major nations no longer rely on Russia for oil supply, some countries are still buying from Russia. This leads to the concern that such countries might have to turn to the open market to make up for their supply shortage one day. Seasonality Crack falls in the 2nd half of the year Seasonal trends indicate a pattern where the 3:2:1 crack spread declines in the second half of the year. This trend has persisted for 6 out of the past 10 years, with the average decline of 29%. Three of the remaining four years closed flat, with one year ending approximately 20% higher. Economic Growth Current economic growth weak but some soft landing expected The year-on-year GDPs for major economies are trailing their long-term averages, indicating still fragile economic growth as industries and consumers grapple with sticky inflation and high rates. Weak economic growth generally dampens the crack spread, as industries and consumers cut back on spending, reducing the demand for refined products. Currency Interplay Between Dollar, Crude, and Crack Spread The Inverse Dollar and Crude Oil has as long-standing positive correlation up until the Russian-Ukraine Crisis when both Crude Oil and the dollar move sharply higher. As this relationship now begins to normalize again, any weakness in the dollar could provide the fuel for Crude & the Crack Spread to rally again. The crack spread is also highly correlated with Crude Oil outright prices, hence any view on crude oil can also be expressed using the Crack Spread. The crack spread hit an all-time high in June 2022 amidst the Russia-Ukraine tensions. Currently, the spread trades at a higher range relative to the past two decades and seems to face some resistance at the previous all-time high in 2013. On a shorter timeframe, the crack spread appears to be breaking out of a symmetrical triangle to the upside, typically a signal of bullish continuation. With prices slightly dipping, this could present an enticing opportunity. On balance the impending risk of the geopolitical event breaking out as well as the structurally weakening dollar seems to outweigh the seasonality and economic weakness effect. To express our view on the 3:2:1 crack spread, we can set up a long position on the crack spread. This can be set up by buying 2 RBOB Gasoline Futures & 1 NY Harbor ULSD Futures and selling 3 Crude Oil Futures at the current level of 114.5, stop loss at 97 and take profit at 140. The calculation of the 3:2:1 crack spread should also be noted as: (2 * RBOB Gasoline Futures + 1 * NY Harbor ULSD Futures ) * 42 – (3 * Crude Oil Futures). The factor 42 is multiplied to the RBOB Gasoline Futures and NY Harbor ULSD Futures as the two are quoted in USD per gallon, this converts the price quotation in Barrel terms, which is the same as Crude Oil Futures. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.eia.gov www.cmegroup.com www.cmegroup.com www.cmegroup.com www.cmegroup.com
NYMEX:RB1!Long
by inspirante
2
A simple sell strategy for Heating OilWith price and “commodity premiums” that we track showing signs of a structural shift, we think these represents potential tradeable set-up in the mid to long term as supply and demand finds some way to normalization after the pandemic & war shocks over the past 2 years. Hence, we think commodities will continue to be where the actions at. With winter just about over, we thought it would be perfect time to look at the ‘talk’ of pre-winter, Heating Oil. After a staggering 600% run-up from the depths of 2020 to the peak pre-winter last year, Heating Oil might just be on the opposite journey now. On a weekly timeframe, Heating oil has decisively broken the uptrend established since 2020 and now sits on the support level for the 2011-2014 period of 2.75. Zooming closer on the RSI, the current level proves to be a pivotal point for heating oil’s trend, as each time the RSI crosses below the 40-level, it is followed by an accelerated move lower. In fact, taking a short position every time the RSI crosses below the 40-level would have netted an average of 27%, if you manage to catch the bottom! Even if you can’t catch the bottom, following the strategy, where we build a short position in heating oil when RSI crosses below 40, and hold it until RSI crosses back above 40, would still make a respectable 18.3% average return. On a shorter timeframe, Heating Oil seems to be trading within a descending channel, with the trend pointing lower. Another thing we like to look at is the relationship/premium between Heating Oil and Crude Oil. However, as the two types of contracts are quoted differently, we have some work to do to rebase the prices into a comparable format. Given that Heating Oil is quoted in US Dollars and Cents per gallon, while Crude Oil is quoted as US Dollars and Cents per barrel, we can convert Heating Oil to be denominated in barrels. 1 barrel equals to roughly 42 gallons, therefore, we can simply multiply Heating Oil price per gallon by 42 to get its price per Barrel. Given Heating Oil is 2.7505 USD per gallon, this works out to be roughly 115.52 USD per barrel. This allows us to see the relationship between Heating Oil and Crude oil. The former is trading at a premium to latter. Over the past winter the Heating Oil premium reached it’s all time high, toping out close to 100 USD per barrel more than Crude Oil. With Spring now in sight, it appears a new season has dawned upon this premium, with the Heating Oil - Crude Oil premium now falling below the previous highs in 2011-2012. Should this continue, then we can expect the price gap between the 2 types of oil to close, with Heating Oil being the likely culprit to drive it lower. The general downward trend in current Heating Oil prices, falling Heating Oil premiums and historical RSI-based sell trigger, all point towards a potentially lower Heating Oil. We would consider setting up the trade in the following 2 ways to express our view: 1) Wait for the RSI to cross below 40 and sell, setting the take-profit based on the RSI crossing back above 40 again to close the position. Each 0.0001-point move in Heating Oil Futures Contract is $4.20 USD 2) Trade the spread between Heating Oil and Crude Oil by taking a short position in the CME Heating Oil Futures Contract and a long position in the CME Crude Oil Futures Contract. Given that 1 Heating Oil Contract is for 42,000 gallons, which is equivalent to 1000 barrels, we can Short 1 Heating Oil and Long 1 Crude Oil to form the spread, in order to match the position size of the contracts. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com www.cmegroup.com
Editors' picks
NYMEX:HO1!Short
by inspirante
4
NY Harbor ULSD Futures (HO1!), H4 Potential for Bearish MomentumType : Bearish Momentum Resistance : 3.7979 Pivot: 3.5345 Support : 3.1892 Preferred Case: On the H4, with RSI moving along the descending trendline and price moving along the descending trendline, we have a bearish bias that price will drop to the pivot at 3.5345 where the 61.8% fibonacci retracement and pullback support are. Once there is downside confirmation of price breaking pivot structure, we would expect bearish momentum to carry price to intermediate support at 3.3537 in line with swing low support and 61.8% fibonacci projection. Should price break intermediate support, we would have a bearish bias that price will drop to 1st support at 3.1892 where the swing low support, 127.2% fibonacci extension and -27.2% fibonacci expansion are. Alternative scenario: Alternatively, price may rise to the 1st resistance at 3.7979 where the swing high resistance and 78.6% fibonacci projection are. Fundamentals: The chance of further Federal Reserve rate increases has grown as a result of the US CPI data released overnight showing higher-than-anticipated inflation growth, raising the risk of a worldwide recession and giving us a bearish bias on the oil.
NYMEX:HO1!Short
by Genesiv
Hacking For Ransom- A Franchise- When’s The IPO?My phone constantly rings with solicitations for solar energy, extending the automobile warranty for cars I got rid of years ago, and with dire warnings that charges are pending against me from social security, the IRS, or other agencies. Some are annoying, but many are scams. A few years ago, I opened an email that locked my entire computer system with a message that I would receive the key if I paid a handsome sum in Bitcoin. I chose to get rid of my hard drive and start all over again. Losing years of files was the price for an education. I have never opened a file from an unknown source since that experience. I am even extra careful with attachments from known sources these days. The hackers have been winning Companies have been paying- Colonial and JBS Cryptocurrencies are untraceable The US government says- You’re on your own The ramifications are staggering for businesses and markets Hackers are an ongoing and growing problem for individuals, companies, and even government agencies. Whether they sit in Russia, China, North Korea, or our own backyards, there seems to be no stopping the efforts to extract a ransom. Hackers have been attacking those with insufficient security and have become so technologically sophisticated that they can pierce cyber armor that protects data and the ability to conduct business. The ransom business is profitable. It has a low overhead and is growing. It is disruptive and dangerous. The nefarious offshoot of technological advances is so successful that a public offering of shares in hacking companies would likely receive a high valuation and lots of interest. After all, it’s a real money maker for the culprits. The hackers have been winning Around two years ago, my 91-year-old dad received a phone call from someone saying he was an attorney for his grandson. The caller said my son was involved in a car accident, was in the hospital in Boston, and was under arrest for driving under the influence. He asked my father to send money immediately for his grandson’s defense. Fortunately, he called me, and I immediately called my son, who was sitting at his desk at work in New York City. The call was a scam. I called the FBI, who said they deal with this every day, and there was little they could do as the scammers use networks and phones that are untraceable. Technology has only made law enforcement’s job more challenging. Savvy criminals have been winning. While we did not fall for the scam, many succumb as they pull on emotional drawstrings. What grandfather would not do anything to help or protect their grandchild? If one out of ten or even one hundred scamming attempts succeeds, the criminal venture is highly profitable. Meanwhile, hacking computers take scamming to a new level. When a hacker gets inside the systems of a business or a government agency, they can extract valuable data, proprietary corporate information or shut down all business activity. The latter seems to be the most profitable as companies with little choice are paying up and forking over millions, making hackers huge winners. Companies have been paying- Colonial and JBS Two hacking instances in 2021 temporarily roiled commodity markets. On May 7, Colonial Pipeline, a US oil pipeline system originating in Houston, Texas carries gasoline and jet fuel to the Southeastern United States, was the victim of a ransomware cyberattack. The hack impacted computerized equipment that manages the pipeline system. The move created fuel shortages and caused refining spreads to spike higher in mid-May. The chart shows the spike in the gasoline crack spread to $27.30 per barrel during the week of May 10. The refining margin moved to the highest level since September 2017 as the market feared shortages and consumers in the Southeast began hoarding gasoline. Jet fuel is a distillate oil product. The NYMEX heating oil futures contract is a proxy for other distillates like jet fuel. The chart of the heating oil refining spreads illustrates the rise to $21.28 per barrel during the week of May 10 as the Colonial Pipeline hack created fears of shortages. Colonial Pipeline CEO Joseph Blount told the US Senate Committee on Homeland Security and Governmental Affairs; his company paid a $4.4 million ransom on May 8, the day after the attack. The payment was in Bitcoin, the hacker’s currency of choice. On June 1, JBS, the world’s leading beef supplier, suffered a hack of its computer networks that briefly shut down operations in the US and Australia. While the Colonial hack caused gasoline and distillate prices to spike higher, the beef markets spiked to the downside. August feeder cattle futures dropped to a low of $1.4510 on June 1. August live cattle futures plunged to $1.14625 per pound on fears that meat processing plants would not accept animals because of the hack. JBS CEO Andre Nogueira said the company paid hackers an $11 million ransom “to prevent any further risks for our customers.” Cryptocurrencies are untraceable Some market participants and government officials believe that Bitcoin and cryptocurrencies are causing a rise in hacking that holds companies and individuals hostage. Cryptocurrencies are a libertarian form of money that flies beneath the radar of government officials, central banks, and regulators. While the blockchain records transactions, they are anonymous. Christine Lagarde, the President of the European Central Bank, and Janet Yellen, the US Treasury Secretary, have expressed concerns about the nefarious uses of cryptocurrencies long before the recent hacks. Passions run high in digital currencies. A few years ago, JP Morgan Chase CEO Jamie Dimon called Bitcoin a “fraud.” At the same time, Warren Buffett, one of the world’s preeminent value investors, said cryptocurrencies are “financial rat poison squared.” Charlie Munger, Mr. Buffet’s 97-year-old partner, doubled down and called cryptocurrencies “disgusting” and a threat to civilization in recent comments. The lack of regulation and anonymity make Bitcoin and other cryptos a hacker’s dream. The US government says- You’re on your own The payment of ransom by companies that are critical parts of the US’s energy and food supply chain infrastructure is a failure of the government to protect the businesses and people they serve. Colonial and JBS pay taxes. The individuals that depend on their products pay taxes. The US government is responsible for a safe environment. While the Biden administration promised to get to the bottom of the hacking issues, the President said that the businesses were on their own. President Biden told a reporter, “The bottom line is that I cannot dictate that the private companies do certain things relative to cybersecurity. A lot of you are very seasoned reporters; you’ve been covering this debate up on the Capitol Hill for—before I became President—and, unrelated to President Trump, just a debate internally among Senators as to whether or not the government should be assisting. And it gets into privacy issues and a whole range of things.” The ransom payments were a sign that the businesses could not wait or depend on the world’s leading democracy for assistance. At a recent summit in Geneva, President Biden sought assistance from Russian leader Vladimir Putin as Russia is a leading source of hacking activity. Since the meeting, the hacks continue. Last week, the US leader called his Russian counterpart again to reiterate his displeasure. The ramifications are staggering for businesses and markets The ramifications of hacking for ransom are downright scary. If the culprits can hold a critical energy pipeline and the world’s leading beef supplier hostage, what about the US power grid, water supply, farm and logistical networks, and other critical infrastructure? When companies or individuals pay the ransom, there is no guarantee that the hackers will not demand more or refuse to provide the key so systems can operate. Moreover, a hack that takes data or proprietary information could be a gift that keeps on giving to hackers. It seems that the anonymity of the cryptocurrency asset class only exacerbates the problem. If a hacker cannot receive untraceable payment, they will be less likely to attack. Meanwhile, infrastructure, companies, and individuals remain at risk. With more regulation on the horizon, hackers may use a closing window of opportunity to step up their nefarious activities. A massive hack could impact markets across all asset classes, not only their prices but also their continued operation. Hacking and ransom attacks are a clear and present danger that is growing. They have the potential to disrupt markets and the supply chains for essential products and services. Use the link below to sign up for the next Monday Night Strategy Call Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
Editors' picks
NYMEX:CL1!
by Andy_Hecht
30
HEATING OIL - UHO1! - Sell - Daily ChartHEATING OIL - UHO1! - Sell - Daily Chart Sell @ Current Price approx 1.2458 Sell @ Pull back to approx 1.2568 Take Profit @ 1.0828 Please share your opinion in the comments, and support the idea with a Like 👍 Thank you for your support 😊 Wishing you successful trading 🙏 ------------------------------------------------------------------------------------ 🔺 Disclaimer! The content of this analysis is subject to change at any time without notice. 🔺 It is provided for the sole purpose of assisting traders to make independent investment decisions. 🔺 You must do your own research to create your own trading plan for the market. ------------------------------------------------------------------------------------
ICEEUR:UHO1!Short
by UnknownUnicorn5418842
Heating Oil: Long opportunity and exit plan.Heating Oil is now approaching the 1D MA50 (light blue line) on a non-stop pull back since the peak of the Saudi attack. The 1D chart is neutral (RSI = 47.087, MACD = 0.011, Highs/Lows = -0.0354) signalling that we are approaching the most optimal buy level. We therefore turn bullish on Heating Oil with our Target Zone: 2.1000 - 2.1370. Note that even though 1D is still on Higher Lows, if the price breaks 1.8500 it will most likely re-test the 1.7425 1W Support. ** If you like our free content follow our profile (www.tradingview.com) to get more daily ideas. ** Comments and likes are greatly appreciated.
NYMEX:HO1!Long
by InvestingScope
Heating Oil: Bullish as long as the Channel holds.Heating Oil has been trading on a very steady 4H Channel Up (RSI = 62.494, MACD = 0.014, Highs/Lows = 0.0000) and is currently on its Higher Low. Our long TP is 2.1000, as long as the Channel is holding. The previous bullish run of February 11 - 19, shows that around +8%, the price breaks the uptrend and pulls back on a lengthy descending channel. If the current 4H Channel Up breaks, we expect a similar pull back pattern to take place. ** If you like our free content follow our profile (www.tradingview.com) to get more daily ideas. ** Comments and likes are greatly appreciated.
NYMEX:HO1!Long
by InvestingScope
Heating Oil Warming UpThe Energy complex currently has mixed signals. However, the New York Heating Oil contract appears to be setting up for a bull run.  With the Minor Pivot Stack providing support, the price looks like it is readying for a move up. Go long if the price breaks above 1.9065 and place a stop loss at 1.8660.  With a profit target at 2.0545, this makes for a good risk reward trade. Trade the March 2019 contract, symbol HOH2019, on the ICE Futures exchange with any NFA registered U.S. futures broker, both regulated by the U.S. Commodity Futures Trading Commission.
NYMEX:HO1!Long
by chris333
Heating Oil: Has it just found support?Heating Oil has just made a Higher Low (RSI = 52.430, Highs/Lows = 0.0000) at 2.1600 on the 1W Channel Up that has been dictating its direction since January. Technically this is an ideal long term long entry towards the 2.4466 High. However on the monthly chart and the 1M Channel Up (RSI = 60.743, MACD = 0.148, Highs/Lows = 0.0482) that started on January 2016, we notice repeated patterns within the wider formation. Those suggest a value of and Higher Low near 2.000 before the Channel Up resumes its long term uptrend. In both cases Heating Oil is a long term buy. ** If you like our free content follow our profile (www.tradingview.com) to get more daily ideas. ** Comments and likes are greatly appreciated.
NYMEX:HO1!Long
by InvestingScope