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Heating Oil Oversupply

Even if heating oil stocks are high, investing in heating oil is a trend that started several months ago. With the start of winter in the United States, oil and natural gas prices had risen to levels that were unbelievable a few years ago, and several hedge funds that used to successfully invest in these commodities recognized that gas and oil no longer had room left to run, and so they started to ponder the new energy play.

Heating oil investment changes strongly depending on the season. This commodity is used for heating older homes, in the northeast of the country, mainly. Its price is variable, and it depends primarily on two factors: weather and crude oil price. Despite the fact that more than half the cost of heating oil production originates from the prices of crude oil, the demand varies greatly on the weather. It especially fluctuates according to how cold the weather gets in states like New Hampshire and Maine. However, this winter brought mild temperatures compared to past years, and this caused a lower than normal demand for heating oil, making the stocks of heating oil the highest we have seen in recent years.

The end of the winter season is approaching and this is normally the time for speculators to unwind their positions. The Commodity Investor believes that the heating oil, at approximately $1.80 per gallon, is historically high, and does not expect levels like these once more in quite a few years. A decrease below the dollar per gallon mark in the following six to eight weeks would not be a surprise.

The Commodity Investor-the first publication on record that predicted a substantial decrease in the price of heating oil—was also the first to foretell the same event in natural gas, a prediction that played out just as it was supposed to.

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