Stocks Before Sorties | Diesel, Crude Unfazed by Iran

Posted on 07/19/2019 12:36 PM

 

Farm Diesel --

  • Our regional average farm diesel price gained a penny this week.
  • Nine of the twelve states in our Midwestern survey were unchanged as Michigan and Kansas each added a penny per gallon.
  • Minnesota was our sole decliner, falling a penny per gallon statewide.
  • According to EIA, national distillate stocks firmed sharply in the week ended July 12, up 5.7 million barrels, now 14.9 million barrels above the same time last year.
  • Front month WTI futures shucked roughly $5 bucks on the week to trade around $55.50 as of mid-day Friday.farm diesel price chart

More trouble in the Strait of Hormuz this week. On Thursday, Iran's Foreign Minister Mohammad Javad Zarif said that he would be willing to meet with President Trump to discuss possible solutions to the ongoing nuclear crisis. A few hours later, it was reported the U.S. Navy shot down an Iranian drone that had strayed too close to U.S. vessels. Zarif denied the Navy's claim saying he had no information from Tehran regarding the drone.

Russian officials entered the conversation warning the U.S. not to escalate tensions with Iran. Russia has been working with the European Union in an effort to fill the supply gap left by U.S. sanctions on Iran related to its enrichment of uranium. A Thursday Reuters report gave a clear example of how U.S. imposed sanctions are impacting Iranian trade flows, saying two Iranian shipping vessels are currently stranded in a Brazilian port. Port officials have refused to allow the vessels to refuel for their return trip to Iran.

The vessels had delivered Iranian produced urea to Brazil and were preparing to float cargoes of corn back to Iran. Officials from Brazil's state-run Petrobras confirmed the fuel refusal telling Reuters, "The vessels were included by the United States in the Specially Designated Nationals and Blocked Persons List (SDN)."

We have often noted the crude oil market's distaste for turmoil in the Middle East, but so far the futures priceeia.gov distillate stocks chart response has been muted. When talking farm diesel, I think it is prudent to focus on national stocks which are working their way higher into the five-year average supply range. That should keep a lid on Midwestern farm diesel for the time being.

We are a penny higher this week, and I have been preaching that we will advise growers book harvest fuel aggressively when the market signals a turnaround. With so many states unchanged, and just three states up or down just a penny, I would not call this the "V" bottom we have been looking for. If prices rise sharply next week, we will certainly take notice, but with ruby red currently priced 20 cents below the same time last year and supplies on the rise, we maintain our willingness to be patient.

Having said that, a major unexpected escalation with Iran could force petroleum futures higher, pulling retail prices higher in their wake. We have observed a lag between heating oil futures and farm diesel price movements, so even if heating oil futures push above key $2.00, we expect to have some time to get in front of a potential farm diesel price hike and manage some risk for harvest diesel.

Propane --propane stocks chart

  • Our retail propane price is unchanged for the third consecutive week at an average of $1.21 per gallon.
  • As with diesel, nine of twelve states are unchanged. Minnesota was our only gainer on the week, adding 6 cents per gallon.
  • Michigan fell a penny and Illinois peeled off 3 cents per gallon.
  • According to EIA, national propane stocks gained a meager 0.544 million barrels on the week, now 12.221 million barrels above last year.

To keep this thought in the forefront of your propane strategy, we advise harvest could take a hefty toll on regional propane stocks, and prices could run higher with little warning. Get your ducks in a row and prepare to fill your on-farm storage to capacity when you book LP for grain drying and for home heat.


Fuel
7/1/19
7/8/19
Week-over Change
Current Week
Fuel
Farm Diesel
$2.37
$2.34
+1 cent
$2.35
Farm Diesel
LP
$1.21
$1.21
Unchanged
$1.21
LP

 

 

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