Heating oil futures in the United States edged lower during Friday's trading session, relinquishing a portion of the prior day's substantial gains. The front-month March contract for New York Harbor ultra-low sulfur diesel (ULSD) settled at $2.59 per gallon, a decline of 2.2 cents, or 0.8%. The April contract saw a slightly larger percentage drop, falling about 1% to $2.48.
The market structure remains in a state of backwardation, with nearer-term contracts trading at a premium to those for later delivery. This pricing condition typically signals traders are anticipating tighter immediate supplies relative to future availability, reflecting current inventory concerns.
The primary catalyst for the recent market volatility was data released Thursday by the U.S. Energy Information Administration (EIA). The agency reported a substantial withdrawal of 4.6 million barrels from national distillate fuel inventories for the week. This drawdown pushed total stocks down to 120.1 million barrels, a level analysts noted is approximately 5% below the five-year average for this time of year. The decline was significantly larger than market forecasts.
Industry experts characterized the EIA report as strongly supportive for prices. "The data presented a very bullish picture for distillates," one analyst remarked, pointing to robust underlying demand within the United States. Following the report's release on Thursday, heating oil futures surged roughly 2.6% before moderating on Friday.
Broader crude oil benchmarks provided mixed signals for refined products. Brent crude futures, the international benchmark, slipped 19 cents to settle at $71.47 per barrel. U.S. West Texas Intermediate (WTI) crude eased 14 cents to $66.29. Despite the daily retreat, both benchmarks held onto weekly gains of about 5.3%, supported by geopolitical tensions and supply concerns.
Market participants are closely monitoring several crosscurrents. Geopolitical friction between the United States and Iran continues to inject a risk premium into oil prices, with traders assessing the potential for supply disruptions. Concurrently, the market is weighing signals from the OPEC+ alliance regarding future production policy, including the possibility of restoring output hikes as soon as April.
On the supply side, U.S. refinery utilization operated at 91% of capacity last week, with distillate fuel production averaging 4.9 million barrels per day. The draw in stocks suggests demand is currently outstripping this production rate. Separately, data indicated Saudi crude exports fell to 6.988 million barrels per day in December, their lowest level since September.
The tight distillate situation has direct implications for consumers and businesses. Heating oil, a key distillate, is a primary fuel for home heating in several U.S. regions, and its price closely correlates with diesel, which powers the nation's freight and transportation networks. The EIA reported the national average retail price for No. 2 heating oil was $4.075 per gallon for the week of February 16, before taxes. Prices were higher on the East Coast, averaging $4.104, and reached $4.317 in New York State.
The market now looks ahead to the next set of weekly petroleum statistics from the EIA, scheduled for release on February 25. Traders will also remain vigilant for any developments in U.S.-Iran relations, a factor that has been moving crude and distillate markets in unison. The interplay between tightening physical supplies for products like heating oil and the broader geopolitical and macroeconomic landscape for crude is expected to maintain volatility in the energy complex.
