Should we talk about the weather?

Heating oil prices had taken a beating, falling from $1.90 per gallon in early December to less than $1.50 in mid January. But that was before the cold snap that has punished the Midwest with weeks of sub freezing temperatures, and the heavy snows that have buried the Plains and the East Coast; upstate New York has seen more than 100 inches of snow. In the last few weeks, heating oil has rallied to more than $1.70.

“The main impetus is the temperature,” says Dave Chatterton, managing partner of Powerline Petroleum. He doesn’t anticipate shortages in the near term, but notes that the flush supplies from early January have been shrinking. He’s looking for slightly bearish trade and continued volatility within a range of $1.50 to $1.77 per gallon.

Phil Flynn, energy trader at Alaron Trading Corp. says that there is still significant upside potential. “March could be colder than in the past. We are going to make up for the lack of winter that we had this year.” He adds other reasons include that heating oil is a hedge against diesel fuel and persistent geopolitical risk, such as Russia’s willingness to use energy as a weapon, as it did against Belarus, and its new found cold war stance against the United States. He expects heating oil to trade between $1.62 to $1.78.

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