Page 52 - MEX-Yearbook-2017

Commodity Insights

Heating Oil

Introduction the most important factor to consider when embarking upon heating oil
Heating oil is a type of flammable fuel, commonly used in portable heaters trading for either futures or options is that the many homes that have no
and boilers. It is a refined by-product of crude oil, formed when crude oil access to natural gas heating supplies rely solely on heating oil to provide
is broken down and its constituent parts are separated. Heating oil gained heat during the winter months. This essentially produces a captive market.
popularity in the 1920s with the invention of the oil burner, which replaced There are approximately 8.1 million homes in the US that are believed to
coal as the primary method of heating the home. Coal had several attributes rely on heating oil as their only source of heating, and so each winter there
that made it less than ideal as a fuel for the home: it was messy, it required will always be a heavy demand for the product. Those trading in heating
significant effort by the home-owner to be used efficiently and more oil futures and options will attempt to capitalize on this yearly window
importantly, it was prohibitively expensive. Heating oil was a much more of opportunity, planning strategies for trading accordingly. Experienced
attractive alternative as it was cleaner, cheaper and easier to use. Heating heating oil traders will keep track of weather patterns that may affect heating
oil is still used today, and heating oil futures are heavily traded, leading to oil prices, and plan their trades around them.
opportunities for profit for the savvy trader.
Heating oil is valuable as a commodity for a number of reasons. Perhaps

The heating oil market is also
intrinsically linked with the
crude oil market, as heating
oil is a direct by-product of
crude oil.

51 | MEX NEPAL YEAR BOOK 2017