Heating Oil Extends Rally

US heating oil futures climbed more than 4%, building on an over 11% surge in the previous session to reach their highest level since October 2023, as escalating US–Israel military action against Iran raised concerns over a potential Strait of Hormuz shutdown. In the latest development, US officials vowed to take all necessary measures, while military operations were reported to be set to intensify. Iran also threatened a full closure of the strategic waterway, with a senior military adviser warning on state television that forces “will target any ship attempting to pass through.” The Strait of Hormuz, a narrow chokepoint, handles roughly one-fifth of global oil shipments and significant volumes of natural gas. Meanwhile, OPEC announced on Sunday that it would resume output hikes after a first-quarter pause, though the ability of member nations to continue exports will depend on safe passage through the Strait.

US heating oil futures jumped 11% to $2.88 per gallon, the highest in two years, after unprecedented joint US and Israeli strikes on Iran that killed supreme leader Ayatollah Ali Khamenei raised fears of major disruptions to energy supplies. Shipping companies quickly began rerouting vessels away from the Strait of Hormuz after insurers warned they might cancel coverage or sharply increase premiums. The narrow waterway is a vital chokepoint that handles roughly one-fifth of global oil shipments and significant volumes of natural gas. Meanwhile, OPEC+ announced on Sunday that it would resume output hikes after a first-quarter pause, with a planned increase of 206,000 barrels per day in April, equivalent to less than 0.2% of global demand.

US heating oil futures dropped toward $2.60 per gallon on Friday, retreating from April 2024 highs as a record domestic inventory build finally overwhelmed geopolitical risk premiums. This decline accelerated after the EIA reported a staggering 15.99 million barrel surge in US crude stocks, the largest build in three years. While intensified Middle East tensions and a late season winter storm in the Northeast initially supported prices, the sheer volume of oversupply eventually broke the market floor. Even with ongoing nuclear talks in Geneva and a resilient 4% rise in four week fuel demand, the weight of massive stockpiles forced prices lower. Investors are now shifting focus to the upcoming OPEC+ meeting, where a failure to delay production hikes could push futures even further into the red. Despite the volatility, the market currently favors the bearish supply data over the threats to global flows through the Strait of Hormuz.