Key Highlights

  • US heating oil eased to around $3.50 a gallon after a 10%-plus surge to a one-month high.
  • Traders don't expect the latest US-Iran strikes to trigger a full closure of the Strait of Hormuz.
  • Russia's suspension of diesel exports, following refinery attacks, is keeping global fuel supplies tight.

US heating oil futures pulled back to around $3.50 a gallon after a sharp rally that had pushed prices up more than 10% to their highest level in over a month, as traders concluded that the latest US strikes on Iran were unlikely to spiral into a broader regional war. The retreat reflects a market recalibrating risk after an initial knee-jerk spike.

Security conditions around the Strait of Hormuz have clearly worsened, and tanker traffic through the waterway has slowed as shipping lines exercise caution. Even so, markets are not pricing a full closure of the route as their central scenario. Investors instead expect energy flows through the Persian Gulf to continue in some form, supported by reports that technical-level talks between Washington and Tehran are ongoing and that the US remains committed to a diplomatic resolution.

Layered on top of the Middle East risk premium is a separate supply shock from Russia, historically a major diesel exporter. Moscow announced it would suspend exports and effectively become a net importer of the fuel, after a combination of higher crude costs and repeated Ukrainian strikes on refining infrastructure disrupted domestic operations. The move removes a meaningful volume of diesel from global markets at a time when supply chains are already stretched.

Even after the recent pullback, heating oil prices remain well above levels seen before the current conflict began, despite having retreated from the record high touched in late March. That gap underscores how the combination of Gulf shipping disruption and Russian supply losses has structurally tightened the global diesel market, even as short-term price swings reflect shifting perceptions of escalation risk.

Going forward, the market's attention is likely to remain split between two fronts: whether Hormuz shipping conditions stabilize or deteriorate further, and how quickly — or whether — Russian refineries can resume normal diesel export volumes once repairs are completed.