Are Heating Oil and Distillates Heading for Even Higher Highs?

I asked why heating oil and distillate prices have been volatile in a June 12, 2026, Barchart article, concluding with the following:

An end to hostilities in the Middle East and reopening of the Strait of Hormuz would likely cause oil and oil product prices to decline, with heating oil and other medium distillates leading the way on the downside. However, an escalation in the region could push prices higher, above the early March high, and a challenge to the Q1 2022 all-time high of $4.6709 per gallon wholesale. Heating oil futures soared to that price in March 2022 when Russia invaded Ukraine, causing supply concerns as Russia is a leading crude oil-producing country and cooperates with the international oil cartel on production policy. NATO countries imposed sanctions on Russian petroleum, which is priced on the Brent benchmark. 

Expect a continuation of high volatility in distillate product prices, and you will not be disappointed. Distillates are a critical factor for inflationary pressures. 

 Nearby NYMEX heating oil futures were trading at $3.4525 per gallon wholesale on June 12. In August, the price was higher at near $3.90 per gallon after reaching a record high of $4.6709 on April 2, 2026. Heating oil futures remain elevated, and the escalating conflict in the Middle East will determine whether another higher high is on the horizon. 

Heating oil futures reflect all medium distillates

Heating oil is a medium distillate oil product that trades on the CME’s NYMEX division in the futures market. Heating oil is a proxy for other medium distillates, including jet fuel and diesel fuel. 

The year-to-date continuous contract chart of heating oil futures shows that the price rose 117.4% from $2.1215 at the end of 2025 to a high of $4.6130 per gallon wholesale on April 2, 2026. 

Brent crude oil is light and sweet, but it has a higher sulfur content than the North American WTI crude oil, making it suitable for refining into distillates. Brent crude oil is the benchmark for European, African, and Middle Eastern crude oil, so the war in the Middle East and issues surrounding the Strait of Hormuz and other regional passageways have pushed Brent prices higher and reduced availability, thereby raising heating oil and other distillate prices.

A ceasefire caused heating oil futures to fall 34.9% from the April high to a low of $3.0013 per gallon wholesale on June 18, but the end of the MOU and escalating attacks in the Middle East have boosted the price to near $3.90 per gallon on August 7, 2026.  

The Middle East will continue to drive distillate prices

The United States insists that Iran ends its nuclear aspirations and reopens the Strait of Hormuz without any tolls or other impediments. Iran has stalled for time with negotiations, and members of the IRGC have said that it will control the Strait and continue its nuclear program. The bottom line is that the U.S. and Iran have been trading attacks, with the U.S. bombing Iranian military assets, and Iran retaliating by attacks on neighboring countries hosting U.S. military assets. Moreover, the Iranian-backed Houthis in Yemen have attacked Saudi Arabia, and threaten to close another critical logistical sea passage to the southern Red Sea at the Bab el-Mandeb Strait. Roughly 4 million barrels of Saudi crude oil flow through this Strait daily.  Coupled with the blockade at the Strait of Hormuz, through which is a chokepoint for around 20% of the world’s seaborne petroleum, shortages are likely to develop. 

Meanwhile, as Russia is a leading crude oil producer, the ongoing war with Ukraine is impacting Russian production and refining, only exacerbating the potential for supply shortages. Brent is the pricing mechanism for the Russian and Middle Eastern crude oil, boosting heating oil futures prices, sending them to a record high in April, and currently sitting at near $3.90 per gallon, a level only seen in 2008, 2022, and 2026.

A plunge or parabolic rally hangs in the balance

There are two potential outcomes to the ongoing wars in the Middle East and Ukraine. Escalating hostilities that keep logistical chokepoints closed to traffic and increasing attacks on production and refining will increase supply shortages, creating the conditions for a parabolic rally that could take heating oil futures substantially higher over the coming weeks and months. Aside from heating oil, alternative fuels, including biodiesel, a soybean oil product, and coal prices could experience significant rallies.

Meanwhile, regime change in Iran or an end to hostilities that allows energy commodities to flow through chokepoints and ends retaliatory attacks on Middle Eastern production and refining could cause oil and oil product prices to plunge. A settlement between Russia and Ukraine could also increase the flow of oil and oil products, sending prices lower. However, this scenario seems less likely in August 2026, and the odds currently favor higher prices. 

The U.S. SPR is falling to levels that could exacerbate shortages

As of the week ending on July 17, 2026, the U.S. Strategic Petroleum Reserve stood at 304.8 million barrels, the lowest level in over 43 years, and 427 million barrels below maximum capacity. 

The U.S. has released crude oil from its SPR to cushion the impact of supply shortages caused by hostilities in the Middle East. Meanwhile, the U.S. SPR has declined to a level at which releases will fall, as the SPR cannot fall to zero. The oil is stored in underground salt caverns at four major storage facilities along the Gulf Coast of Texas and Louisiana, and is managed by the U.S. Department of Energy. The four sites have a combined authorized storage capacity of 714 million barrels. The SPR can safely fall to an operational minimum of 70-250 million barrels. As of July 31, the SPR was only 54.8 million barrels above the upper end of the operational minimum. 

The longer the hostilities continue, the rate of SPR releases will decline, further increasing the risk of serious shortages and higher crude oil and oil product prices. Since Brent is the primary component of distillates, heating oil futures could see explosive gains. 

BNO is the ETF that tracks Brent crude oil futures

The U.S. Brent Oil ETF (BNO) tracks the daily price movements of Brent crude oil. At $47.67 per share, BNO had over $869 million in assets under management. BNO trades an average of around 2.22 million shares per day and charges a 1.14% management fee. 

The daily year-to-date BNO chart shows the 114.7% rally from $28.32 at the end of 2025 to a high of $60.81 per share on May 4, 2026. After correcting by 35.2% to a low of $39.04 on July 2, BNO was back above $47.50 per share on August 7, 2026. 

The path of least resistance for Brent crude oil will determine price action in heating oil futures and other medium-distillate products. In August 2026, the landscape favors higher prices as the hostilities continue to escalate. Expect significant volatility in oil and oil product prices over the coming days, weeks, and months, with Brent crude oil and heating oil futures showing the highest volatility.