Fuel Prices Fall as EIA Issues Bearish Forecast

Posted on 10/18/2019 1:03 PM

 

Farm Diesel --

  • Our regional average farm diesel price slipped a penny per gallon this week to $2.36
  • Most states were unchanged. Those that were not, posted price softness with Michigan off a dime, Nebraska fell 4 cents and Kansas dropped a penny per gallon.
  • According to EIA.gov, national distillate stocks fell 3.8 million barrels in the week ended October 11. Stocks are currently 9.1 million barrels below the same time last year, but have fallen below the bottom end of the five-year average supply range... that sounds bullish farm diesel, but the below excerpt from EIA's weekly This Week in Petroleum has something to say about that.
  • Heating oil futures have trended higher this week, but remain below key $2.00 in the front month contract.
  • WTI crude futures have had a similar week, but remain tethered more closely to $50 than to $60. Crude traders are focused on declining economic conditions around the World.diesel price chart

We are 50% filled on Farm Diesel for harvest, but are content proceeding hand-to-mouth. Heating oil and crude oil futures are giving us no indication a sharp rise in diesel is imminent. In this week's This Week in Petroleum, EIA makes the case for lower diesel and propane prices ahead, and we excerpt from that post here...

"As explained in the latest edition of the Winter Fuels Outlook, the forecast declines in home heating expenditures are a function of both weather and energy prices. The National Oceanic and Atmospheric Administration (NOAA) expects this winter to be, on average, about 4% warmer than last year, as measured in heating degree days (HDD). HDD are a measure of how cold a location is over a period of time relative to a base temperature—typically 65 degrees Fahrenheit—and the higher the HDD estimate, the colder the temperatures are expected to be. EIA expects:

  • Warmer weather will reduce demand for space heating,
  • Household winter heating oil consumption will decline by 2.8% across the United States relative to last year, and
  • Propane consumption in the Northeast and Midwest will decline by 2.7% and 6.0%, respectively, during the same period.

In addition to warmer weather, EIA also anticipates that this winter’s prices for heating oil and propane will be lower than last year’s. As of October 7, 2019, retail residential prices for heating oil and propane were at $2.95 per gallon and $1.86 per gallon (excluding taxes), respectively, lower than the year-ago prices of $3.29 per gallon and $2.37 per gallon, respectively. Furthermore, the Winter Fuels Outlook forecasts that prices for the two fuels will remain lower throughout the upcoming heating season relative to last year’s, and more specifically that:

  • Average winter heating oil prices will drop 1.7% relative to last winter,
  • Northeast propane prices will decline 9.6%, and
  • Midwest propane prices will decline 12.0%.propane price chart

These seasonal declines in the prices for heating oil and propane largely result from comparable declines in the prices of crude oil and natural gas. The lower price of heating oil—both current and forecast—can be attributed mostly to low prices for crude oil."

The U.S. Energy Information Administration has made a pretty solid case for lower fuels prices ahead based on the weather and crude/petroleum market fundamentals. For that reason, we advise growers to approach harvest diesel purchases hand-to-mouth for the time being.

Propane --

  • Our regional average propane price fell a penny per gallon on the week with most states unchanged.
  • Wisconsin led declines falling 7 cents per gallon ad Nebraska set-back 4 cents.
  • Minnesota was our sole gainer on the week adding a penny per gallon.
  • According to EIA, national propane supplies fell 328,000 barrels in the report week but are 18.147 million barrels above the same week last year. Supplies are at the very top end of the five year average range.

Fuel
9/30/19
10/7/19
Week-over Change
Current Week
Fuel
Farm Diesel
$2.36
$2.37
-1 cent
$2.36
Farm Diesel
LP
$1.16
$1.16
-1 cent
$1.15
LP

 

 

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