NYMEX Ultra-Low Sulfur Diesel (ULSD) futures, which serve as a benchmark for heating oil and diesel, advanced 0.4% during Thursday's trading session, settling at $2.5413 per gallon. Trading activity was moderate, with approximately 63,900 contracts exchanging hands. The contract price fluctuated within a daily range between $2.4826 and $2.5892, reflecting ongoing market uncertainty.
Inventory Data Reveals Underlying Tightness
The latest weekly report from the U.S. Energy Information Administration (EIA) showed a marginal increase of 0.3 million barrels in national distillate fuel inventories, bringing the total to 120.4 million barrels for the week ending February 25, 2026. Despite this build, stockpiles remain approximately 5% below the five-year seasonal average, underscoring a persistent supply deficit in the middle distillates complex. This structural tightness continues to provide a fundamental floor for prices, even as crude oil inventories have surged.
In the physical market, the spot price for heating oil at the New York Harbor delivery point closed at $2.58 per gallon, representing a daily decline of 1.9%. The Gulf Coast 3:2:1 crack spread, a key indicator of refinery profitability measuring the difference between crude input costs and prices of refined products like gasoline and diesel, retreated to $11.51 per barrel. This suggests some moderation in refining margins from recent elevated levels.
Geopolitical Tensions and Crude Correlation
Heating oil prices moved in tandem with the broader crude complex, which found support from geopolitical developments. Media reports from Geneva regarding U.S.-Iran negotiations introduced volatility, with headlines suggesting discussions were encountering difficulties. This injected a renewed risk premium into the market, pulling crude benchmarks off their session lows.
Brent crude futures ultimately gained $1.17 to settle at $72.02 per barrel, while U.S. West Texas Intermediate (WTI) crude added 87 cents to reach $66.29. The price action demonstrated the sensitivity of refined product markets to upstream crude movements and geopolitical supply risks. John Kilduff, a partner at Again Capital LLC, noted that traders were recalibrating positions to account for the potential of tougher supply constraints should diplomatic efforts falter.
Market Dynamics and Seasonal Factors
While heating oil is traditionally associated with winter demand for residential heating, its price is increasingly dictated by year-round diesel consumption. Diesel demand is driven by freight transportation, industrial activity, and agricultural use. The market closely monitors refinery production yields, industrial economic indicators, and inventory levels in key regions like the U.S. Northeast as the traditional heating season approaches its conclusion in March.
The ULSD futures contract is highly responsive to shifting fundamentals. A breakthrough in negotiations with Iran, which could lead to an increase in global crude supply, would likely ease upward pressure on crude and subsequently pull heating oil prices lower. Conversely, another significant drawdown in distillate inventories in upcoming reports would reinforce the narrative of persistent scarcity and support higher price levels.
Key Events on the Horizon
Market participants are now focusing on two imminent events. First, the OPEC+ alliance is scheduled to convene on Sunday, March 1, to discuss production policy for April. The group is reportedly considering a modest increase in output quotas but remains cautious about upsetting a market already elevated by geopolitical strain. Their decision will directly influence crude oil input costs for refiners worldwide.
Second, the energy sector awaits the next EIA Weekly Petroleum Status Report, scheduled for release on Wednesday, March 4. This report will provide a crucial updated snapshot of distillate inventory levels as the winter demand period winds down. The data will be critical for assessing whether the tight supply situation is beginning to ease or if deficits will persist into the spring.
The interplay between these fundamental inventory reports and geopolitical supply risks will determine the near-term trajectory for heating oil and diesel markets. Traders are positioned for continued volatility as they navigate the collision between tangible stockpile tightness and the unpredictable nature of international diplomacy.
