Two Different Fuels, Two Different Responses

Posted on 03/27/2020 12:31 PM


The crude oil production war and coronavirus converge in heating oil futures. The recent fall in crude oil prices related to the OPEC+ production war weighed on rbob futures heavily, pressuring futures below the value of heating oil futures. This is a very unique setup according to Brian Splitt from, and is indicative of the differing impacts on gasoline and diesel prices of the oil war and the coronavirus.

In comments via email, Splitt wrote, "The energy markets were the first markets to aggressively price in the coronavirus demand destruction before other markets reacted. RBOB futures went from trading at a premium to Heating Oil to trading at less than half the price of Heating Oil on this week’s low. I believe this is indicative of the demand destruction from consumer entities driving cars vs the demand destruction from commercial entities driving semis and such. I also believe the reversal of this trend may be the canary in the coal mine for when the energy market believes the overall economy is back on the upswing and we are ready to return to some sense of normalcy."

You have undoubtedly noticed the bottom has fallen out from under retail gasoline prices. That price pressure is the product of declines in crude oil and Americans staying at home and driving less -- a lot less. But the inversion of rbob and heating oil futures points to stable diesel prices. While there was a short dip in the transport of consumer goods, the transportation industry as a whole has been cleared to work at a furious pace to keep consumer goods available at retail outlets. In addition, farm products -- chemicals, fertilizer and seed -- have been prioritized, and shipments to retailers are increasing there as well.

As gasoline consumption has decreased, diesel consumption has risen. Below we highlight EIA's report that has national distillate stocks at the very bottom end of the five-year supply range. Demand for fueling transport along with tightening distillate stocks will keep a hard floor under farm diesel prices. Prices reported to your Inputs Monitor are down this week, but with the increase in over the road transport and spring fieldwork right around the corner, we do not expect to see farm diesel prices fall much farther.

NOTE: On Thursday, April heating oil futures closed at $1.05. That same day, April unleaded gasoline farm diesel price chartfutures closed at 54 cents, down from the recent January 6 high of $1.94.

Farm Diesel --

  • Our regional average farm diesel price fell 4 cents this week to $2.27.
  • Nebraska led declines falling 21 cents as Kansas dropped 12 cents and Minnesota softened a dime per gallon. Only Michigan posted a higher price, up a penny per gallon this week.
  • According to EIA, national distillate stocks fell 700,000 barrels, now 5.7 million barrels below the same time last year and at the bottom of the five-year average supply range.
  • April heating oil futures are exploring a deep downside dive. On the week, the contract is up a nickel (as of Thursday March 26). But that nickel only got the contract up to $1.05.
  • Out heating oil/farm diesel spread has formed what technical traders might call a "death cross." The value of the spread firmed above the actual value of heating oil futures. That is a setup we have not yet encountered so it is difficult to know if retail diesel will fall sharply enough to correct the backwardised spread. (See chart at bottom.)
  • We will continue to wait on farm diesel to indicate a clear price floor. Now is not the time to overextend on ruby red, so for the time being,m stay hand to mouth on supplies for fieldworkpropane price chart and livestock transport.

Propane --

  • Our regional average propane price fell 4 cents on the week.
  • Ohio fell a massive 46 cents per gallon with Kansas off a dime and Michigan down 4 cents. Nebraska gained 11 cents. All other states were unchanged.
  • According to EIA, in the week ended March 20, national propane stocks fell 1.811 million barrels but remains 13.282 million barrels above the same week last year. Stocks are above the top end of the five-year average supply range.

Week-over Change
Current Week
Farm Diesel
-4 cents
Farm Diesel
-4 cents

heating oil futures farm diesel spread chart


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