Market Pulse
U.S. crude oil inventories fell by 400,000 barrels for the week ending September 4, according to the EIA, bringing commercial stockpiles to 424.1 million barrels—roughly in line with the five-year average. The decline was slightly larger than the 300,000-barrel draw reported by the API.
Crude prices moved sharply higher Thursday, with Brent at approximately $106 per barrel and WTI at $100.50, both up more than 4.5% on the day.
Gasoline inventories increased by 1.3 million barrels, while distillate inventories rose by 2.1 million barrels but remain 13% below the five-year average. Total petroleum products supplied averaged 20.1 million barrels per day over the past four weeks, down 3.7% year over year, indicating softer overall U.S. demand.
Fundamentals
EIA’s Weekly Petroleum Inventory in MM’s BBLS
| Commodity | US Inventory | Change | 5 Yr Ave | CURRENT MARKETS |
|---|---|---|---|---|
| Crude Oil | 424.1 | -0.4 | 432 | WTI Crude: 6.64 |
| Gasoline | 207.0 | 1.3 | 222 | RBOB: 0.1895 |
| Distallates | 106.3 | 2.1 | 119 | Heating Oil: 0.2908 |
| Commodity | US Inventory | Change | Midwest Invent | Change |
|---|---|---|---|---|
| Propane | 110.5 | 3.1 | 26.6 | 0.4 |
Propane
Propane prices continue to move higher in tandem with crude oil. Last week, prices increased by nearly 10 cents, while inventories remain at record-high levels.
Despite the recent strength, propane remains seasonally inexpensive relative to crude. Reduced LPG flows from the Middle East continue to tighten global supplies, putting additional pressure on buyers who were late to make their summer fills and are now working to secure volume ahead of the dryer and heating seasons.
Should You Lock In Fixed Heating Oil Prices for the Next Year?
With heating oil and diesel markets facing significant supply uncertainty, many buyers are evaluating whether they should lock in fixed prices for the coming year or remain exposed to the spot market. Based on the current fixed-price curve, there is a strong argument for securing some winter volume, but less justification for locking in the entire year’s requirements today.
The fixed prices currently being offered range from $5.0857 per gallon for October 2026 to $3.1575 per gallon for June 2028. The curve reflects a market that expects prices to remain elevated in the near term before gradually normalizing.
The key question is whether that expected normalization will occur—or whether ongoing supply constraints will keep diesel and heating oil prices elevated through the winter.
The Argument for Fixing Prices
The strongest argument for buying fixed-price contracts is protection against a prolonged diesel.
The U.S. diesel market is entering the fall with relatively tight inventories, while global diesel supplies remain vulnerable to geopolitical disruptions. Crude prices have also moved sharply higher, increasing the cost of producing and replacing refined products.
If these conditions persist into the winter heating season, heating oil prices could move substantially above current fixed-price levels.
The December through February fixed prices are particularly attractive from a risk-management perspective:
- December 2026: $4.1635/gal
- January 2027: $4.1120/gal
- February 2027: $4.0356/gal
If the market were to reach $5.00 per gallon during those months, the potential savings from having fixed the price would range from approximately 84 cents to 96 cents per gallon.
For a customer using 1 million gallons, that represents approximately $840,000 to $960,000 in potential savings compared with purchasing at $5.00 per gallon.
Fixed pricing therefore provides more than price certainty—it provides insurance against a severe winter supply event.
The Argument Against Fixing
The primary argument against locking in the entire requirement is that the current forward curve already anticipates a significant decline in prices.
The fixed-price curve falls from $5.0857 in October 2026 to $4.1635 in December, then gradually declines through 2027. By December 2027, the fixed price is only $3.2940 per gallon, eventually reaching $3.1575 by June 2028.
That represents a substantial reduction from today’s elevated market environment.
If the current geopolitical disruption eases, global oil production and refining operations normalize, U.S. inventories rebuild, and diesel exports decline, prices could fall considerably from current levels.
In that scenario, customers who lock in large volumes today could find themselves paying a premium to the spot market for months after the supply situation improves.
This is particularly relevant for the October and November contracts. At $5.0857 and $4.6705 per gallon, respectively, those prices require the buyer to pay a substantial premium to eliminate near-term price risk.
Winter Looks More Attractive Than the Rest of the Curve
The most compelling part of the curve is December through February.
The buyer is not locking in at the peak October price. Instead, they are securing winter protection at prices around $4.00–$4.16 per gallon.
That creates an attractive risk/reward profile.
If the market normalizes, the buyer may pay somewhat more than the eventual spot price. However, if the current supply problems persist, the fixed-price buyer has substantial protection against another major price spike.
The risk/reward becomes less compelling farther out on the curve. The 2027–28 prices are already substantially lower, suggesting the market expects conditions to normalize over time. Locking in large volumes that far forward would therefore represent a much larger bet on continued high prices.
A Balanced Approach May Make the Most Sense
Rather than choosing between being completely fixed or completely floating, a layered approach may provide the best balance between protection and flexibility.
A buyer could secure a larger percentage of expected winter consumption while leaving a portion of the requirement exposed to the market.
For example, a company could consider:
- October: Limited fixed coverage
- November: Moderate fixed coverage
- December–February: Higher fixed coverage
- March–June: Moderate coverage
- Summer 2027 and beyond: Primarily floating, with additional contracts purchased opportunistically
This approach protects the business against the most significant winter price risk while still allowing it to benefit if the market declines.
It also avoids making one large purchase based on a single market snapshot.
The Bottom Line
The current market presents a difficult choice. There is a legitimate risk that diesel and heating oil prices remain elevated through the winter, particularly if global supply disruptions continue and U.S. inventories remain tight. At the same time, the forward curve is clearly pricing in eventual normalization.
For that reason, locking in 100% of next year’s requirements today does not appear to be the most attractive strategy.
A more prudent approach would be to secure a meaningful portion of winter requirements—particularly December through February, while maintaining some floating exposure.
Humor
Disclaimer: The data, information and related graphics (collectively, “Information”) is for general information use only and is compiled from sources believed to be reliable. Dale Petroleum Company does not guarantee its accuracy or completeness, nor does DPC assume any liability for any inaccurate or incomplete information. The Information is not intended to be a research report nor an analysis of a company and it should not be relied upon for making investment decisions. The information is subject to change without notice, is for general information only and is not intended as any offer or solicitation with respect to the purchase or sale of any financial instrument or as personal investment advice.