Farm Fuels In Focus | Diesel, LP Upside Risk Building

Posted on 05/04/2018 11:38 AM

 

  • June 2018 natural gas opened today at $2.75, up 8 cents from our last report.
  • Farm Diesel is unchanged on the week at an average of $2.38 per gallon.
  • June 2018 WTI crude oil opened the day at $67.68, down 58 cents from our last report.
  • June 2018 Heating oil futures opened the day at $2.11, unchanged from our last report.
  • Propane is up a penny at $1.42 per gallon regionally.

Farm Diesel -- Farm diesel was unchanged on the week as Minnesota gained 12 cents per gallon. Iowa and Nebraska each firmed 4 cents. Eight states were unchanged as Michigan was our only decliner falling a dime on the week.

Crude oil futures are finding it difficult to move to $70 per barrel, and heating oil futures are meeting similar resistance around $2.15. Meanwhile, farm diesel has sported a 2 cents range since April 1. If we calculate the April ranges in terms of percentage, farm diesel has filed a 2.9% range. During the same period, heating oil has gained 7.1% and WTI crude futures have risen 8.9%. Farm diesel prices have not yet expressed the uptrending, wider range of crude and heating oil.diesel price chart

That may be cause for concern as EIA reported a net decline in total U.S. distillate stocks on the week. We believe WTI will moderate if futures continue to fail to crest $70. But a sustained move above that level injects some technical upside risk in an already technically undervalued farm diesel bid. That being the case, it seems wise to keep your tanks on the full side in case farm diesel decides to correct sharply higher.

On the other side of the coin, there is little to indicate building downside potential in farm diesel. EIA and other industry watchers are predicting a rise in gasoline and highway diesel prices this summer. You have probably already noticed a hike in your local gasoline prices, and that will limit the downside for ruby red as well.


  • Distillate inventories reported by EIA softened 3.9 million barrels to 118.8 mmbbl. Stocks are currently 31.5 mmbbl below the same time last year.
  • The regionwide low currently lies at $2.12 in Ohio. The Midwest high is at $2.61 in Missouri.
Farm Diesel 5/4/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$2.48
$2.49
+4 cents
$2.53
Iowa
Illinois
$2.31
$2.31
Unchanged
$2.31
Illinois
Indiana
$2.50
$2.50
Unchanged
$2.50
Indiana
Ohio
$2.12
$2.12
Unchanged
$2.12
Ohio
Michigan
$2.39
$2.39
-10 cents
$2.29
Michigan
Wisconsin
$2.19
$2.19
Unchanged
$2.19
Wisconsin
Minnesota
$2.35
$2.40
+12 cents
$2.52
Minnesota
North Dakota
$2.39
$2.39
Unchanged
$2.39
North Dakota
South Dakota
$2.36
 
$2.36
 
Unchanged
 
$2.36
 
South Dakota
Nebraska
$2.40
$2.40
+4 cents
$2.44
Nebraska
Kansas
$2.33
$2.35
Unchanged
$2.35
Kansas
Missouri
$2.61
$2.61
Unchanged
$2.61
Missouri
Midwest Average
$2.37
$2.38
Unchanged
$2.38
Midwest Average

Propane -- Propane prices were a penny higher led by Kansas which added 3 cents as Nebraska firmed 2 cents per gallon. Nine states were unchanged as Missouri fell 2 cents.

With the home heating season in the rear view mirror, Midwestern supplies will begin to rebuild, pressuring retail prices.

I would urge Michigan residents, especially in the U.P., to click here to read an article from the Iron Mountain Daily News from earlier this week. The article begins, "There is no emergency plan on the books to oversee propane distribution in the Upper Peninsula should Enbridge Line 5 cease to function for an extended period, sources confirm, even though nearly two-thirds of the propane used annually in the region originates from the controversial pipeline."propane price chart

The article highlights concerns among officials regarding a major propane pipeline and while no imminent threat of a shutdown to the pipeline in question was mentioned, the fact that officials are raising concerns seems worth some attention. If you are customer in the Upper Peninsula of Michigan, or live in the area, it might be prudent to pick your preferred retailer's brain on the matter. I might also suggest you keep your tanks filled if you purchase propane in northern Michigan and in the U.P.

The Iron Mountain Daily article cites environmental concerns playing a role and as the pipeline itself ages, environmental advocates fear the ecological impacts of a pipeline failure. So it is possible that propane purveyors are front-running a potential disaster of that kind, and that their pointing out the lack of a back up plan should the pipeline come offline could easily be construed as an effort to raise awareness of the lack of preparedness, hoping to inspire the creation of such a back up plan. No need to panic, northern Michigan, but it would not hurt to keep the matter in mind.

And on the subject of pipelines, the Pittsburgh Post-Gazette reports the Mariner East 1 pipeline has been approved to resume transit of propane through the northeastern U.S. after having been shut down for inspection. Sinkholes had opened up in the pipeline's vicinity as crews worked on an expansion project, but the all clear has been given. Click here to read the article from the Pittsburgh Post-Gazette. There had been speculation that an extended shutdown of the Mariner East 1 pipeline would allow propane supplies to back-up into the Midwest, pressuring offseason prices on the Plains.


  • According to EIA, national propane inventories firmed 0.660 million barrels -- now 3.297 million barrels below the same time last year at 36.370 million barrels.
  • The regionwide low is at $1.20 per gallon in Wisconsin, and the regionwide high is in Indiana at $1.81.
LP 5/4/18
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.23
$1.23
Unchanged
$1.23
Iowa
Illinois
$1.43
$1.43
Unchanged
$1.43
Illinois
Indiana
$1.81
$1.81
Unchanged
$1.81
Indiana
Ohio
$1.35
$1.35
Unchanged
$1.35
Ohio
Michigan
$1.22
$1.22
Unchanged
$1.22
Michigan
Wisconsin
$1.20
$1.20
Unchanged
$1.20
Wisconsin
Minnesota
$1.64
$1.61
Unchanged
$1.61
Minnesota
North Dakota
$1.39
$1.39
Unchanged
$1.39
North Dakota
South Dakota
$1.47
 
$1.47
 
Unchanged
 
$1.47
 
South Dakota
Nebraska
$1.21
$1.21
+2 cents
$1.23
Nebraska
Kansas
$1.23
$1.50
+3 cents
 
$1.53
Kansas
Missouri
$1.55
$1.55
-2 cents
 
$1.53
Missouri
Midwest Average
$1.39
$1.41
+1 cent
$1.42
Midwest Average

spread chart

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