The above graph explicitly illustrates one of the main driving forces of 2025 – geopolitics. In fact, it reflects the impact the Russian-Ukrainian war has had on refinery margins and oil flows over the past four years.

First, the CME Group Heating Oil/WTI crack spread has been significantly above historical norms on an annual average basis since 2022, when Russia launched its invasion of its western neighbor. Although the mean crack-spread value of $55/bbl recorded in 2022 – the year the invasion took the oil market by surprise – has not been challenged since, Heating Oil has recently traded confidently more than $20/bbl above the U.S. benchmark crude oil. By historical standards, the difference remains elevated, with the exception of the 2011 – 2013 period, when the recovery from the U.S. and euro-zone financial crises was underway.

Second, it is notable that these resilient crack-spread values have been coupled with strong U.S. distillate export volumes. While the emergence of the U.S. shale industry, with its heavier and sourer domestic crude slate, initially incentivized distillate production that found a home outside the U.S., over the past four years, healthy export volumes have been driven primarily by international sanctions on Russian refined products – particularly distillates and diesel – along with effective Ukrainian drone attacks on Russian oil infrastructure, including refineries. Pre-war Russian diesel export volumes stood above 1 mbpd, retreating to below 800,000 bpd by 2025. Europe, the main consumer of Russian products, was therefore forced to seek alternative supplies and found willing sellers in U.S. refineries, thereby supporting the Heating Oil/WTI crack spread.

Although indirect peace talks between Russia and Ukraine are ongoing with U.S. assistance, a long-term agreement – despite sporadic optimistic developments – does not appear forthcoming, primarily because of Russia’s maximalist territorial and political demands aimed at curtailing Ukraine’s sovereignty. When such an agreement eventually materializes, however, it would likely lead to the partial or full lifting of sanctions on Russian oil, the resumption of exports and a consequent decline in European demand for U.S. distillates. Only if and when such a development irrevocably takes place would the CME Group Heating Oil crack weaken significantly, and the current 2026 strip of around $30/bbl ought to come under intense pressure. The weakness, however, will plausibly prove temporary as demand for U.S. refined distillates will not fall globally but will merely be realigned. Depressed European demand will be replaced by African and Latin American nations, the current buyers of Russian distillates and diesel. Consequently, any dip below $20/bbl will be viewed as an irresistible buying opportunity.