FX.co ★ Heating Oil Extends Downturn

US heating oil futures continued their decline, nearing $2.50 per gallon. This marks a deeper retreat from the 10-week high of $2.67 recorded on January 28th as the markets adjusted from a weather-induced rally and reconsidered supply conditions. Initially, prices soared by over 12% across four sessions due to expectations of sustained cold weather in the US. However, forecasts increasingly suggest that peak winter demand has passed, with milder temperatures spreading across the northern regions post-early February. Additionally, inventory data has further challenged optimistic market views, with distillate stockpiles, encompassing diesel and heating oil, increasing by 329 thousand barrels, contrary to the anticipated 0.55 million barrel decrease. Moreover, heating oil inventories marked a second consecutive weekly build. Despite this, prices remain significantly higher than early January levels, supported by previous cold-induced demand, refinery outages, and fuel switching driven by high natural gas prices, which increased fuel oil usage for power generation.