Looking to the Futures

Heating oil futures rose to a weekly high on Thursday, settling at $2.5034. The cold front sweeping across the country east of the Rockies accompanies production issues and international events to provide support to prices.

The cold front has caused single-digit temperatures across much of the Midwest and snow as far south as Georgia. In New York and New England, temperatures are as much as 15 degrees below normal. Lower temperatures in the Northeast are especially impactful on heating oil demand, given that over 80% of US households using heating oil are there. To the west, the frigid weather is reducing supply. Pipeline operators in North Dakota, the third-largest oil-producing state, reported that oil production was down between 120,000 and 150,000 barrels per day due to the weather. The weather has also impacted natural gas production with freezing wellheads.

Even farther to the west, production is still reduced following a fire at a refinery in Martinez, CA. The refinery normally supplies 157,000 barrels per day to the Bay Area. Normal refinery maintenance is also reducing supplies of heating oil. Part of the reason for refineries going offline is the switch from winter gasoline to summer gasoline, which starts in California before moving across the country.

Internationally, OPEC+ members have been the source of conflicting reports about upcoming production increases. The cartel has reduced supply by 5.85 million barrels per day since 2022. Bloomberg News reported that delegates are considering delaying the production increase currently scheduled for April. That report was directly contradicted by a report from Russia’s RIA news agency, citing Russian Deputy Prime Minister Alexander Novak. The scheduled increase would bring approximately 140,000 barrels per day, with further increases adding up to 2.2 million barrels per day.

Speaking of Russia, President Putin met with President Trump this week to discuss moving toward a peace deal with Ukraine. While it’s still early innings, a peace deal with Ukraine could mean an end to sanctions on Russian oil. Those sanctions include a $60/barrel price cap for crude and $2.38/gallon for refined products. There are exemptions to the caps, and Russia is operating a “shadow fleet” of tankers flying flags of convenience to sell oil at market prices. Nevertheless, easing sanctions could increase supply, especially to Europe. In the short term, a drone attack on a pumping station in southern Russia has reduced supplies coming from Kazakhstan.

The Energy Information Administration’s Weekly Petroleum Status Report showed refinery utilization at 84.9% last week. Distillate production including heating oil increased to 4.7 million barrels per day. Crude inventories increased by 4.6 million barrels and are now 3% below the five-year average for this time of year. Distillate inventories decreased by 2.1 million barrels and are 12% below the five-year average.

Heating oil is healthily above the 50-day SMA, along with the 9- and 20-day averages. The Parabolic Stop and Reverse is in a supportive position. Recent resistance around $2.30 could evolve into a new support after the rally that started the year. The RSI is in a relatively neutral sport and the MACD is trending upward toward zero.

Major economic reports, trading events, and news items that could potentially impact specific futures markets:

S&P Global Services PMI for December (interest rates and stock indices)

Factory Orders for November (interest rates)

USDA export inspections (grains and cotton)