With the Polar Vortex in the midwest and weekly named storms riding up the East Coast natural gas (UNG) prices have been soaring. In fact natty gas prices started rising in 2012 before a pause in 2013 ahead of this latest move. And what a move up over 85% since November before this week’s pullback. Some of this is related to the weather of course as there has been a shift by homeowners in the Northeast over the last 5 years toward heating with natural gas, and away from heating oil.
But that may be ready to swing back the other way. AG Web came out with a Petroleum Report: Northeast Demand Drives Heating Oil Consumption two weeks ago that touches on the why. Here is an excerpt:
Strong demand for natural gas fired heat in the Northeast is prompting energy producers to make the switch from natgas to heating oil in response to higher natural gas spot pricing. This could move farm diesel pricing higher near-term. The East Coast is set up to run either natural gas or heating oil, but has been solely focused on natgas fired heat for several years. This year, however, marks a change according to the U.S. Energy Information Administration…
As a technical trader, this makes me take a look at heating oil. And the chart below shows that there has been a whole lot of nothing going on for 3 years. Of course this can continue this way for a long time without any move higher, but is seems that a catalyst has appeared, so if it is ready to move this is a good time. Time to prepare.
The move leading into the long consolidation suggests that a breakout to the upside would target heating oil prices at 4.80. From the current 3.0 level that is great and it still looks attractive using a trigger of 3.20 as a channel break. Are you ready?
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