FX.co ★ Heating Oil Drops From 3-Month Highs

US heating oil futures have slipped below $2.40 per gallon, pulling back from recent three-month peaks. This decline is attributed to the reduced costs of crude oil feedstock and an excess in global supply, which have both exerted downward pressure on prices. Globally, oil supply dynamics have shifted notably; a previous deficit of 60,000 barrels per day has turned into a substantial surplus, now approaching 1.3 million barrels per day. The International Energy Agency (IEA) anticipates an increase of 3 million barrels per day this year, with an additional 2.4 million barrels per day expected in the coming year. Meanwhile, the US Energy Information Administration (EIA) projects that inventory levels will remain high until 2026. In the US, reduced demand for distillates—partly due to lagging industrial activity and the housing sector—has led to decreased refinery operations, adding further downward pressure on heating oil prices. Nonetheless, the European diesel market has provided a degree of support. Factors such as US sanctions against Rosneft and Lukoil, Ukrainian attacks on Russian energy infrastructure, and a shutdown at Kuwait’s Al-Zour refinery, which processes 615,000 barrels per day, have propelled European gasoil prices to their highest in over 20 months, also leading to backwardation in the market's forward curve.