Crude oil futures are slightly lower this afternoon and we have been watching the market's overbought condition, anticipating a technical correction. As of this writing, WTI futures have corrected that condition with the passage of time, rather than with lower values. That suggests traders believe WTI futures are fairly valued around $64 (March).
Today's dip in crude futures is related to the fundamentals in the market... more specifically, EIA's report today that U.S. crude supplies grew by an unexpected 6.8 million barrels. Analysts, on average, had expected a 1.6 million barrel draw. Today's lift in U.S. crude stockpiles ends a string of weekly draws and suggests higher prices are beginning to bring U.S. production out of the woodwork.
Last week, production rose above 9 million barrels per day, and EIA has predicted production output to average 10.3 million barrels per day in 2018. OPEC and its non-OPEC collaborators continue to closely manage their production output, but there have been some rumors lately that Russia and Iran may revolt, and shake off the production restraints imposed by OPEC.
Near-term technical support in March WTI futures lies at the bottom of the range forged through the middle of the month around $63.24, which could indicate futures will stair-step its way back downward through the lows-$60's and into the high $50's. Since there is a seasonal refinery maintenance run coming up, we may see inventories swell further, pressuring futures.
As the crude rally runs out of steam, heating oil futures are falling from recent highs as well. February heating oil futures topped out around $2.14 on Monday and have fallen to test $2.06 earlier today. resistance there lies around $2.04 on its way back below $1.96. Just earlier today, my pal, Pro Farmer Senior Economist Dan Vaught said the following regarding the matter, "After dropping a good bit the past two days, March heating oil is now trading under its 20-day moving average. Looks like a lot of support around $2.05, but it might not take a whole lot to trigger a test of $2.00, which coincidentally, is where the 40-day moving average is located."
We will continue to watch both the fundamentals and the technicals in crude and heating oil futures. But there is reason to stand pat for awhile longer before booking farm diesel for spring fieldwork. Barring some black swan event that supports higher crude and petrol-product prices, we expect lower farm diesel prices between now and spring.