U.S. heating oil futures have surged above $2.45 per gallon, marking their highest point since late July, driven by a combination of heightened demand and a resurgence in crude oil prices. Recent developments, such as the announcement of a "framework" between the United States and China, have clarified trade relations and strengthened the fundamentals of crude oil, enabling it to bounce back from its recent lows. Additionally, the imposition of new U.S. sanctions on Russian energy giants Rosneft and Lukoil has tightened the expected supply from Russia, further boosting crude prices.
Meanwhile, U.S. distillate inventories continue to be significantly below seasonal averages, following a 17% reduction, which translates to around 22 million barrels, within the first half of 2025. The Energy Information Administration (EIA) forecasts that this deficit will persist into 2026, leaving limited reserves to accommodate increases in heating demand. The situation is exacerbated by cooler weather projections for late October and early November, which have intensified the demand for heating. Moreover, a substantial decrease of nearly 35% in renewable diesel and biodiesel production has eliminated a critical alternative supply source.
