Farm Fuels in Focus: Crude Coaxes Diesel Higher

Posted on 03/09/2017 10:25 AM

 

  • LP is up 2 cents on the week at $1.07 per gallon.
  • May 2016 natural gas opened today at $2.04 -- up 3 cents from our last Fuels in Focus.
  • Farm Diesel is 1 cent higher on the week at an average of $1.59 per gallon.
  • May 2016 WTI crude oil opened the day at $41.54 -- higher $4.02 from our last report.
  • May 2016 Heating oil futures opened the day at $1.26 -- 13 cents higher than our last report.

Farm Diesel -- As gasoline demand forecasts firm and crude oil prices look shaky above $40 per barrel, gasoline production has risen. As we noted in last week's entry, higher gasoline production has led to increased production of middle distillates at the same time. Since gasoline demand is outrunning diesel demand, distillate stocks are currently surging. EIA reported this week that U.S. distillate supplies firmed one half million barrels.

diesel"If we look at heating oil futures for clues to diesel price movements, we find front-month heating oil futures have firmed sharply since placing a short-term low on April 5. On a daily chart, it is very interesting to note that WTI crude futures also placed a low in a similar "V" bottom pattern on April 5. Heating oil and diesel fuel have followed WTI futures very closely this month as we would expect. But since middle distillate production has increased, why have farm diesel prices firmed? Shouldn't bulging national stocks in a climate of weak global diesel demand pressure farm diesel prices? The answer is, of course, yes. If it were not for strong seasonal demand for farm diesel, I believe farm diesel would be flat, as is highway diesel.

Deferred contracts in both heating oil and in WTI crude point these markets higher which at this point forces us to believe diesel prices will firm as well. Once spring demand for farm diesel fades, ruby red will likely correct lower as we believe farm diesel has overdone it to the upside according to EIA stocks data. Also keep in mind the way crude oil futures have led traders on a number of rumor-based wild goose chases, and given global production and stocks, many market watchers believe current crude prices may be unsustainable.

All of this confirms our notion that farm diesel placed its annual low in February and will not reach that level again. We do expect diesel to offer opportunities through late spring before fall fieldwork so we do not see any reason to overextend on farm diesel.

  • Distillate inventories reported by EIA firmed 0.5 million barrels to 163.5 mmbbl. Stocks are currently 34.5 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.47 in Missouri and the Midwest high is at $1.79 in Indiana.
Farm Diesel 4/14/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.61
$1.61
-3 cents
$1.58
Iowa
Illinois
$1.51
$1.67
Unchanged
$1.68
Illinois
Indiana
$1.71
$1.79
Unchanged
$1.79
Indiana
Wisconsin
$1.60
$1.60
Unchanged
$1.60
Wisconsin
Minnesota
$1.54
$1.65
Unchanged
$1.65
Minnesota
South Dakota
$1.44
$1.59
Unchanged
$1.59
South Dakota
North Dakota
$1.29
$1.27
21 cents
$1.48
North Dakota
Nebraska
$1.44
$1.55
Unchanged
$1.55
Nebraska
Missouri
$1.48
$1.48
-1 cent
$1.47
Missouri
Kansas
$1.46
$1.47
4 cents
$1.51
Kansas
Ohio
$1.43
$1.64
Unchanged
$1.64
Ohio
Michigan
$1.62
$1.64
-10 cents
$1.54
Michigan
Midwest Average
$1.51
$1.58
1 cent
$1.59
Midwest Average

 

LPPropane -- Propane prices are currently supported by strong exports. EIA reported in its most recent available data that January propane exports totaled 866,000 barrels per day. That's in the middle of peak winter heating season and while U.S. stocks did dip a bit during wintertime, supplies held for domestic consumption remained strong enough to limit LP price strength. With January exports surging to a level 75.6% above January 2015 and retail prices holding flat, we believe production will continue at or near current levels and exports will do the same.

If supplies are moved from domestic storehouses to export terminals and sold on the global market, U.S. supplies may fall, supporting prices. We will continue to watch export and production activity as an indication of when prices will place their seasonal summertime low. We still expect everything to continue as it has been over the past 12 months in the propane sector and for propane prices to bottom in July.

  • According to EIA, last week, national propane inventories firmed 2.844 million barrels -- now 7.685 million barrels above the same time last year at 67.702 million barrels.
  • The regionwide low is at $0.89 per gallon in South Dakota & Nebraska and the regionwide high is in Indiana at $1.54.
LP 4/14/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.93
$0.93
2 cents
$0.95
Iowa
Illinois
$0.94
$1.18
Unchanged
$1.18
Illinois
Indiana
$1.53
$1.54
Unchanged
$1.54
Indiana
Wisconsin
$1.00
$1.00
Unchanged
$1.00
Wisconsin
Minnesota
$0.96
$0.97
Unchanged
$0.97
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.93
$0.93
Unchanged
$0.93
North Dakota
Nebraska
$0.89
$0.89
Unchanged
$0.89
Nebraska
Missouri
$1.19
$1.19
2 cents
$1.21
Missouri
Kansas
$1.05
$1.01
9 cents
$1.10
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$1.16
$1.16
7 cents
$1.23
Michigan
Midwest Average
$1.04
$1.05
2 cents
$1.07
Midwest Average

 

Spreadds


 

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