Farm Fuels in Focus: Crude Fundamentals Fuel Bullish Sentiments

Posted on 03/09/2017 10:25 AM

 

  • LP is down 3 cents on the week at $1.02 per gallon.
  • June 2016 natural gas opened today at $2.14 -- unchanged from our last Fuels in Focus.
  • Farm Diesel is 3 cents higher on the week at an average of $1.64 per gallon.
  • June 2016 WTI crude oil opened the day at $44.04 -- lower $1.26 from our last report.
  • June 2016 Heating oil futures opened the day at $1.34 -- 3 cents lower than our last report.

Farm Diesel -- The deck is stacking against the downside for crude oil, heating oil and farm diesel. Wildfires in Alberta, Canada are forcing thousands of citizens to evacuate areas surrounding Fort McMurray which is deep in the heart of Canada's tar sands region. Oil production and transport of crude and petroleum products from that region will decline as a direct result of the Alberta fires. Meanwhile, U.S. oil producers are having difficulty with financing their operations. During the last quarter, JPMorgan reported the amount of loans characterized as "criticized " loans -- a banking industry term for loans that are on shaky ground or have not been making full payments -- climbed by 45 percent to $21.2 billion. Other major lenders report crude oil sector loans in similar situations. U.S. oil production will decline if producers and oilfield services providers have trouble acquiring credit. That's a heavy handful of bullish news for crude oil prices.

Diesel"Supply side fundamentals do not favor the upside this week for crude oil. EIA reported U.S. crude oil in storage increased 2.8 million barrels per day to 543.4 million barrels, 11 1/2% above the same time last year. Distillate supplies have at the same time declined 1.3 million barrels and although supplies are currently well above the top end of the five-year average, traders will view current distillate market fundamentals as bullish which will add strength to heating oil futures and farm diesel by extension.

Small oil producing nations like Venezuela, Libya, Ecuador and others will continue to struggle to maintain profitability in this low oil price environment. Venezuela, for example is suffering power outages as drought has cut into their generation of hydroelectric power due to drought which will make it difficult to keep crude production up and running. Libyan production is likely to decline near-term as rival east and west factions flare tensions. Militant groups there have reportedly blocked crude oil cargoes from being loaded, slowing the flow of crude oil exports. Ecuador is still reeling from a magnitude 7.8 earthquake and authorities are still struggling with satisfying the basic needs of the people, as the South American nation digs out from under massive destruction.

The crude oil tide is turning based on the economic difficulties some global oil producers are facing. Saudi Arabia refused to freeze production until Iran agrees to placing a production ceiling. Global crude oil output is now expected to continue declining a bit at a time creating a bullish longer-term outlook which has already been set in motion. If higher demand forecasts are realized, crude and fuels supplies will fall more quickly, adding more support to crude oil and distillates.

We have suspected the February farm diesel price low would be the lowest price we see in 2016 and global production fundamentals support that position. Does that mean we should be booking diesel now before prices firm through summer? It is important to remember Midwestern farm diesel is also supported by strong seasonal demand for agricultural fuels. We expect diesel prices to fall at least slightly beginning in June or July, but we fully expect harvest price to rise above today's.

  • Distillate inventories reported by EIA fell 1.3 million barrels to 157.0 mmbbl. Stocks are currently 26.2 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.48 in North Dakota and the Midwest high is at $1.95 in Indiana.
Farm Diesel 5/5/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.56
$1.54
Unchanged
$1.54
Iowa
Illinois
$1.67
$1.80
Unchanged
$1.80
Illinois
Indiana
$1.79
$1.84
11 cents
$1.95
Indiana
Wisconsin
$1.60
$1.60
Unchanged
$1.60
Wisconsin
Minnesota
$1.67
$1.70
Unchanged
$1.70
Minnesota
South Dakota
$1.59
$1.59
Unchanged
$1.59
South Dakota
North Dakota
$1.50
$1.50
-2 cents
$1.48
North Dakota
Nebraska
$1.49
$1.48
3 cents
$1.51
Nebraska
Missouri
$1.47
$1.59
Unchanged
$1.59
Missouri
Kansas
$1.52
$1.52
1 cent
$1.53
Kansas
Ohio
$1.64
$1.64
4 cents
$1.68
Ohio
Michigan
$1.53
$1.53
16 cents
$1.69
Michigan
Midwest Average
$1.59
$1.61
3 cents
$1.64
Midwest Average

LP

Propane -- With home heating season over, there isn't much to say about propane. As far as we can tell, infrastructure is still in solid shape and production continues at a pretty good clip. Supplies at present are ample seasonally which should keep prices in line with our expectations through the offseason and into winter 2016-17. We will be watching for the midsummer low to book for winter.

  • According to EIA, last week, national propane inventories firmed 0.659 million barrels -- now 5.342 million barrels above the same time last year at 71.858 million barrels.
  • The regionwide low is at $0.85 per gallon in Ohio and the regionwide high is in Indiana at $1.26.
LP 5/5/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.93
$0.92
Unchanged
$0.92
Iowa
Illinois
$1.18
$1.18
Unchanged
$1.18
Illinois
Indiana
$1.54
$1.50
-24 cents
$1.26
Indiana
Wisconsin
$1.00
$1.10
Unchanged
$1.10
Wisconsin
Minnesota
$0.95
$0.95
Unchanged
$0.95
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.93
$0.93
Unchanged
$0.93
North Dakota
Nebraska
$0.87
$0.87
Unchanged
$0.87
Nebraska
Missouri
$1.21
$1.12
Unchanged
$1.12
Missouri
Kansas
$1.08
$1.08
Unchanged
$1.08
Kansas
Ohio
$0.95
$0.85
Unchanged
$0.85
Ohio
Michigan
$1.23
$1.21
-8 cents
$1.13
Michigan
Midwest Average
$1.06
$1.05
-3 cents
$1.02
Midwest Average

 

SpreadsFuels


 

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