FX.co ★ Heating Oil Extends Downturn

U.S. heating oil futures have slid to approximately $2.40 per gallon, marking a decline from their peaks in April 2024. This shift comes as the market sees some alleviation from the previously tight distillate supply chain, with inventories expanding and crude oil costs decreasing. Additionally, renewed diplomatic discussions have lessened the geopolitical risk premium. Notably, distillate inventories experienced an unexpected increase of 171,000 barrels in the week leading up to November 14th, easing immediate worries about a potential shortfall and causing traders and refiners to halt aggressive inventory replenishment. Furthermore, the National Oceanic and Atmospheric Administration (NOAA) forecasts indicate sporadic regions with below-average temperatures through late November into early December. This prediction supports only modest and uneven heating demand geographically, not enough to counteract the boost in inventory. Concurrently, crude oil prices have softened due to reports of progress in U.S.-mediated talks between Russia and Ukraine along with a U.S.-devised proposal under discussion. This development has reduced the wartime premium on Russian oil and raises the potential for increased future supply.