This Must be the Bottom... Right?

Posted on 06/05/2020 11:30 AM

 

This week, farm diesel skidded sharply lower. We speculated that last week's price was so low at $1.48 that the bottom might have been placed. We are 9 cents lower this week. Surely prices will go no lower. But then EIA released itsEIA distillate chart weekly distillate stocks figure which showed a very aggressive gain in stocks, the likes of which we have seldom seen. OPEC members have reportedly been talking this week about an agreement to extend production cuts to the end of the year.

Compliance with the production cuts agreed to by members has been lackluster at best, but it was said that after this week's confab, Iraq, who came in less than 50% compliant last month, may have agreed. There were also rumors that Russia and Saudi Arabia have come to terms on the extension. The group will meet this weekend to iron out the details and possibly put pen to paper. But compliance may continue to be an issue -- overall compliance with the previous accord has been estimated around 75%. So even if a deal is reached, the cuts may be only partially adhered to.

Turning an eye toward our own tried and true analysis, our heating oil futures/farm diesel price spread is nearing our "line in the sand" suggesting upside risk in the retail market is building. This in the midst of myriad factors that could either pressure or support retail prices. U.S. planting is all but wrapped up, high sulfur diesel is on the outs in maritime shipping and crude oil prices are a wild card. Add the extraordinary stocks build reported by EIA, and there may yet be one more short leg down for retail diesel.

We will wait until the retail market actually reverses and moves higher before we issue advice to stock up for summer farm diesel price chartand harvest activities. But at the lowest price recorded in the life of the Inputs Monitor, farm diesel is certainly a bargain, and if your appetite for risk has run out, by all means, book summer and harvest needs at current prices. Surely, this must be the bottom... right?

Farm Diesel --

  • Our regional average farm diesel price fell sharply again this wee, down 9 cents per gallon to $1.39.
  • As with recent weeks, many states were unchanged. Wisconsin led declines, falling 63 cents per gallon. Michigan softened 29 cents and Missouri fell 20 cents per gallon. Illinois was our only gainer on the week, up 12 cents.
  • According to EIA, national distillate stocks skyrocketed 9.9 million barrels to a level 44.9 million barrels above the same week last year in the week ended May 29.
  • Heating oil futures have recovered from their low with the June contract closing Thursday afternoon at $1.07. That's 30 cents above the low placed on April 27 at 77 cents.propane price chart
  • Front month WTI futures have entered the downside gap between $42.04 and $37.64 placed March 9. As of Thursday's close, June futures had firmed $19.81 from the April 28 low of $17.60 to $37.41.

Propane --

  • Our regional average propane price firmed 7 cents per gallon.
  • Most states were unchanged on the week as Wisconsin firmed 21 cents, Illinois gained 12 cents and Michigan added a dime. North Dakota was our only decliner on the week, falling 9 cents per gallon.
  • According to EIA, national propane stocks firmed 3.089 million barrels to a level 3.942 million barrels above the same week last year.

Fuel
5/18/20
5/25/20
Week-over Change
Current Week
Fuel
Farm Diesel
$1.50
$1.48
-9 cents
$1.39
Farm Diesel
LP
$1.15
$1.12
+7 cents
$1.19
LP

heating oil farm diesel spread chart

 

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