Farm Fuels in Focus: The Petro Party is Over

Posted on 03/09/2017 10:25 AM
  • LP is unchanged on the week at $1.01 per gallon.
  • April 2016 natural gas opened today at $1.62 -- down 21 cents from our last Fuels in Focus.
  • Farm Diesel is 2 cents higher on the week at an average of $1.45 per gallon.
  • April 2016 WTI crude oil opened the day at $34.66 -- higher $2.47 from our last report.
  • April 2016 Heating oil futures opened the day at $1.12 -- 7 cents higher than our last report.

Farm Diesel -- We pulled the trigger on farm diesel last week as our appetite for risk has run out (click here to view the ALERT). Crude oil and related products are gingerly working higher. Reports are beginning to surface of mild declines in U.S. crude production but EIA reported a 10.4 million barrel build in total national stocks this week. The strong supply build could be related in some part to refineries switching to summer fuel blends, backing up supplies in the channel for the time being. If that is the case, the completion of refinery switchovers will bring demand back to the market from crackers which will likely spur traders over to the long side of the market.

dieselWhile experts just a few weeks ago were calling for $20 per barrel crude oil, some of those same voices are now eyeing the $40 dollar level as the next epicenter of rangebound crude oil trade. The area around $36 has been tough resistance on the April contract and a break through that level would embolden market bulls. Rising heating oil prices are a good indicator of impending diesel price strength and while our spread analysis still has a few more ticks to narrow before we hit our traditional "go-zone", that analysis was initiated in a much different crude oil price climate.

Since crude and petro-products pricing has slid so far so fast, we may need to adjust our go-zone for future analysis. Currently, the fundamentals are only mildly supportive for crude. As far as farm diesel is concerned, this time of the year is one of two annually where demand is strong enough from farmers that a price hike is warranted. If you have not already get covered on diesel for spring and summer, and, if you have the storage space, consider booking some for fall as well. We suspect diesel prices have placed a low that will stand for many years. The upside will be limited, but if U.S. crude production softens, the sharply lower price trend in crude and diesel fuel will come to an abrupt end.

Adding to our suspicion that diesel will firm is the fact that 9 of the twelve states in our diesel price survey ticked higher this week. Only North Dakota posted a lower price, falling a penny per gallon and 2 states ere unchanged. That is as strong of an indication as any that diesel prices are headed higher.

  • Distillate inventories reported by EIA firmed 2.9 million barrels to 163.6 mmbbl. Stocks are currently 40.66 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.36 in Kansas and the Midwest high is at $1.64 in Wisconsin.
Farm Diesel 3/4/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.39
$1.42
1 cent
$1.43
Iowa
Illinois
$1.45
$1.45
5 cents
$1.50
Illinois
Indiana
$1.55
$1.55
3 cents
$1.58
Indiana
Wisconsin
$1.63
$1.50
14 cents
$1.64
Wisconsin
Minnesota
$1.46
$1.46
1 cent
$1.47
Minnesota
South Dakota
$1.38
$1.38
3 cents
$1.41
South Dakota
North Dakota
$1.39
$1.39
-1 cent
$1.38
North Dakota
Nebraska
$1.31
$1.38
1 cent
$1.39
Nebraska
Missouri
$1.46
$1.46
1 cent
$1.47
Missouri
Kansas
$1.36
$1.36
Unchanged
$1.36
Kansas
Ohio
$1.39
$1.39
Unchanged
$1.39
Ohio
Michigan
$1.40
$1.40
1 cent
$1.41
Michigan
Midwest Average
$1.43
$1.43
2 cents
$1.45
Midwest Average

LP

Propane -- Propane exports surged in December -- EIA's most recent data -- by 11 percent. We saw a mild price response in December when price ticked a few cents higher, but it could easily be attributed to cooler regional temperatures during that time. Since then, prices have been extremely flat right around $1.00 per gallon. As we said above, the deepest declines are likely over for crude oil which will eventually support slightly higher propane prices. Offseason price lows across the Midwest this year may not reach as far down as last year's price low of 98 cents per gallon, but we do not see much reason for propane to stray too far from a regional average of $1.00 per gallon next summer -- I'm looking for a low of about $1.05 in the last week of July 2016, although that may be a little on the high side.

  • According to EIA, last week, national propane inventories fell 3.675 million barrels -- now 7.995 million barrels above the same time last year at 63.065 million barrels.
  • The regionwide low is at $0.87 per gallon in Kansas and the regionwide high is in Indiana at $1.36.
LP 3/4/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.92
$0.94
3 cents
$0.97
Iowa
Illinois
$0.94
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.36
$1.36
Unchanged
$1.36
Indiana
Wisconsin
$1.00
$1.00
Unchanged
$1.00
Wisconsin
Minnesota
$1.00
$1.00
-4 cents
$0.96
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.92
$0.92
-1 cent
$0.91
North Dakota
Nebraska
$0.89
$0.88
Unchanged
$0.88
Nebraska
Missouri
$1.19
$1.19
Unchanged
$1.19
Missouri
Kansas
$0.87
$0.87
Unchanged
$0.87
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$1.19
$1.16
Unchanged
$1.16
Michigan
Midwest Average
$1.01
$1.01
Unchanged
$1.01
Midwest Average

 

FuelsIndex


 

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