Farm Fuels in Focus: Heating Oil Spread Pressing Its Luck

Posted on 03/09/2017 10:25 AM
  • LP is unchanged on the week at $1.01 per gallon.
  • March 2016 natural gas opened today at $1.94 -- down 18 cents from our last Fuels in Focus.
  • Farm Diesel is 2 cents lower on the week at an average of $1.43 per gallon.
  • March 2016 WTI crude oil opened the day at $31.17 -- higher $1.28 from our last report.
  • March 2016 Heating oil futures opened the day at $1.09 -- 4 cents higher than our last report.

RubyRed"Farm Diesel -- Crude oil market speculation is getting out of hand. OPEC's February Monthly Oil Market Report notes that hedge fund activity had turned bullish by the end of January in ICE Brent futures, increasing net long positions by 60% during the month as open interest increased 5.18 million contracts, an 8% increase. Fund activity has been a major factor in crude futures pricing to date and the shift to the long side may indicate prices are set to rebound. However, if OPEC producers freeze production at January levels, they will still be producing 32.335 million barrels per day. That's up from the 30 million barrels per day market watchers once believed was as high as OPEC would go. That paints a bearish scenario regardless of what speculators want to believe, especially considering U.S. production will also remain at the top end of what is expected for the foreseeable future.

Heating oil futures are a much greater concern to us. As Farm diesel prices fall and heating oil futures firm, the gap has narrowed into a range that suggests a low may be very near. (See chart at bottom of this page) Since mid-January, heating oil futures have struggled to breech resistance around $1.11. This morning the front month contract opened at $1.09 and quickly firmed to $1.11. From there, the contract moved sharply lower but stayed above $1.07. With retail farm diesel at $1.43, heating oil futures need to firm to at least $1.14 before we expect an upward response from farm diesel. We must also keep spring demand in mind which will bring fresh demand news to diesel markets, supporting mild price strength across farm country.

crstussUnless some event adds premium to crude oil and heating oil futures however, we believe once spring agricultural demand subsides, prices will edge back lower. Farm diesel prices gave indications of basing for a move higher this week as only five of the twelve states we survey were lower. But no state posted a higher price per gallon. Those states that did not fall in this week's price action were unchanged on the week. The overall price decline has flattened, but is still solidly in place. We will stay hand-to-mouth for the time being on diesel, but the time to take advantage of the offseason low is running out.

We expect to pull the trigger on spring/summer fuels as early as next week so be prepared to book spring diesel very soon. It may even be wise to start collecting bids. Write that number down and call for bids at the same location(s) this time next week. If prices have firmed during that time, there's your sign to book ahead of spring price strength.

  • Distillate inventories reported by EIA firmed 1.3 million barrels to 161.0 mmbbl. Stocks are currently 29.8 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.31 in Nebraska and the Midwest high is at $1.63 in Wisconsin.
Farm Diesel 2/18/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.47
$1.45
-6 cents
$1.39
Iowa
Illinois
$1.53
$1.45
Unchanged
$1.45
Illinois
Indiana
$1.73
$1.57
-2 cents
$1.55
Indiana
Wisconsin
$1.63
$1.63
Unchanged
$1.63
Wisconsin
Minnesota
$1.63
$1.53
-7 cents
$1.46
Minnesota
South Dakota
$1.62
$1.38
Unchanged
$1.38
South Dakota
North Dakota
$1.66
$1.39
Unchanged
$1.39
North Dakota
Nebraska
$1.37
$1.31
Unchanged
$1.31
Nebraska
Missouri
$1.67
$1.46
Unchanged
$1.46
Missouri
Kansas
$1.42
$1.42
-6 cents
$1.36
Kansas
Ohio
$1.54
$1.39
Unchanged
$1.39
Ohio
Michigan
$1.44
$1.44
-4 cents
$1.40
Michigan
Midwest Average
$1.56
$1.45
-2 cents
$1.43
Midwest Average

prstuss

Propane -- Missouri, Indiana and Minnesota all posted firmer propane prices this week. Warmer forecast temperatures through the weekend may put an end to upside potential for now, but another cold snap could add support once again to LP regionally. Overall we are unchanged this week but national stocks have taken a turn to the downside, almost tapping the top end of the five year average supply range.

No change to our near-term forecasts for mild price movement based on the weather with very limited upside potential. If the commodity slump led by crude oil and natural gas continues into the summer, we expect your offseason prices to come in well below $1.00 and possibly below last year's summer price.

  • According to EIA, last week, national propane inventories fell 3.288 million barrels -- now 9.843 million barrels above the same time last year at 74.798 million barrels.
  • The regionwide low is at $0.87 per gallon in Kansas and the regionwide high is in Indiana at $1.36.
LP 2/18/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.94
$0.92
Unchanged
$0.92
Iowa
Illinois
$0.94
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.45
$1.32
4 cents
$1.36
Indiana
Wisconsin
$1.00
$1.00
Unchanged
$1.00
Wisconsin
Minnesota
$0.99
$0.99
1 cent
$1.00
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.91
$0.95
-3 cents
$0.92
North Dakota
Nebraska
$0.91
$0.89
Unchanged
$0.89
Nebraska
Missouri
$1.11
$1.11
8 cents
$1.19
Missouri
Kansas
$0.93
$0.93
-6 cents
$0.87
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$1.25
$1.19
Unchanged
$1.19
Michigan
Midwest Average
$1.02
$1.01
Unchanged
$1.01
Midwest Average

 

HOIndex


 

"

Add new comment