Farm Fuels Bulletin | Diesel Slips Amid Solid Crude Build

Posted on 05/02/2019 12:54 PM

 

Farm Diesel

  • Farm diesel was down a penny on the week.
  • Indiana declined 15 cents per gallon with Michigan, North Dakota and Minnesota also softening.
  • Heating oil futures are well off last week's highs, and following crude oil futures lower as of mid-day Thursday, May 2.
  • According to EIA, U.S. distillate production fell 1.3 million barrels per day to 125.7 mbd, 6.9 million barrels above the same time last year.
  • National distillate supplies are just below the mid-point of the five-year average supply range.

Crude Oil deserves a bit of attention this week. WTI futures topped last week at $66.30 but after falling three dollars from that high, the June contract was working its way back to the upside. But on Wednesday, the U.S. Energy Information Administration reported U.S. total crude oil supplies rose by 9.9 million barrels on the week on an expected rise of just 1.4 million barrels. That's the largest U.S. production build so far in 2019.farm diesel price chart

Matt Smith, director of commodity research at ClipperData told MarketWatch, "A drop in refining activity and a rise in imports has helped propel crude inventories to another large build. The vast majority of the build was on the U.S. Gulf Coast—with refinery runs ticking lower and waterborne imports on the rise.”

This comes as U.S. production swells above 12 million barrels per day on average. President Trump had urged Saudi oil producers to increase production as crude prices climbed, but Saudi Arabia declined. Significant production cuts in Saudi Arabia could easily turn crude oil prices back to the upside. Add to that the extreme social and political unrest in Venezuela, and there are more than a few factors that could support futures near-term.

But notice what Smith said above... "a drop in refining activity," is adding pressure to futures. That drop in refining activity includes distillates which could signal a pending rise in farm diesel prices. But consider the way spring fieldwork has gone so far... some areas have been able to go whole hog while others have been forced to wait. This is spreading diesel demand out over time, allowing supplies to generally keep pace with demand. If there is a silver lining to all the trouble growers have had getting a weather window to open, it is the limits the scattered stand-downs will put on diesel demand and pricing.

This week's penny per gallon setback in farm country is worth rewarding with a top off, and while there is significant risk WTI futures will recover amid a weekly decline in distillate production, there is greater risk when the weather breaks that farmers will turn and burn en masse, adding demand-based price strength in those local markets. (Click here to read the full MarketWatch article from May 1)

Propane

  • Propane is unchanged on the week amid wild state-to-state price action.
  • Kansas led gains firming 24 cents per gallon, but mild declines in Indiana, Wisconsin and Minnesota offset the upside swing.
  • According to EIA, national propane supplies are on the rise, firming 1.161 million barrels to 58.940 million barrels, 22.570 million barrels above the same week last year.

Fuel
4/15/19
4/22/19
Week-over Change
Current Week
Fuel
Farm Diesel
$2.46
$2.45
Unchanged
$2.45
Farm Diesel
LP
$1.46
$1.45
Unchanged
$1.45
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 analysis indicates mild upside risk for retail farm diesel.

farm diesle heating oil futures spread chart


 

 

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