Weekly Farm Fuels Bulletin | Surge in Natgas Futures Opens Upside

Posted on 11/06/2018 4:19 PM

 

Farm Diesel

  • Farm diesel firmed a nickel, likely in response to robust harvest demand.farm diesel price chart
  • WTI crude oil futures, however are off roughly $7 in the past two weeks after having placed a double-top in the $67.90 area on Oct. 26 and 29.
  • Distillate inventories reported by EIA in the week ended Oct. 26 were 4.1 million barrels below the previous week and currently stand 2.6 million barrels below the same time last year. Overall, national distillate stocks are at the very bottom end of the 5-year average supply range.
  • Heating oil futures have followed a very similar path as WTI, but by percent, heating oil futures have fallen only 4.8% during the same period of time in which WTI fell 8.4%. That may indicate an open downside for heating oil futures.
  • It is likely the 15 cent upside gap in front month natural gas futures on Monday will limit the downside for heating oil -- and diesel by extension. But a 4.8% drop in our current farm diesel price would put us around $2.60 somewhere near the first of December.
  • We expect a Christmastime swoon in our regional average diesel price and we will advise to book a portion of spring needs if ruby red moves in that direction again this year.

Propanedec natgas futures price chart

  • Our regional average propane price is unchanged on the week although it was a hard fought unchanged with half of the states in our survey posting sizable moves either up or down.
  • According to EIA, Midwest propane inventories are 792,000 barrels above the previous 5-year average at 27.8 million barrels. EIA notes, "Propane inventories in the Midwest United States had been lower than the previous five-year average for much of 2018, but in recent weeks, net additions to inventories increased Midwest propane to levels ." (click here to view the report.)
  • I must also reference natural gas' leap to the upside this week, and while futures trade is far more subject to speculation than are retail propane prices, if the strength in natgas this week presages a sharp uptick in demand for home heat, propane prices will firm as well. Make sure you have ample LP supplies -- we have recommended you fill your entire winter's supply ahead of the first snowfall -- in case propane does decide to follow natgas higher.

Fuel
10/22/18
10/29/18
Week-over Change
Current Week
Fuel
Farm Diesel
$2.64
$2.70
+5 cents
$2.75
Farm Diesel
LP
$1.38
$1.42
Unchanged
$1.42
LP

Our farm diesel/heating oil futures spread compares the weekly average retail farm diesel price with front-month heating oil futures as of the close on the previous Friday. A move below the "line in the sand" indicates pending upside risk. A move above our "line in the sand" indicates downside potential.

This week, our spread indicates near-term downside potential for retail farm diesel. (see below)


farm diesel heating oil futures spread

 

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