Diesel Advice Updated... Again

Posted on 06/19/2020 11:39 AM

 

This week on AgriTalk Radio, Chip and I spoke with Phil Flynn, energy expert from the Price Futures Group. No way I was going to let the opportunity pass to pick his brain on farm diesel. I asked Phil if the recent aggressive builds in the national distillate supply would come to an end soon, and what that end would look like. Flynn obliged, saying the current overhang in distillate stocks was the result of grounded planes and moored export vessels. Once the economy reopens, demand from those sectors will ramp up. But at the same time, gasoline demand is likely to firm. Flynn believes that refiners will then turn their attention to producing gasoline at the expense of diesel production.

Indeed, EIA reports for the first time in eleven weeks, distillate stocks fell in the most recent report week. Flynn expressed he believes that could result in a distillate supply underhang in the coming months. Translation... by harvest, farm diesel supplies could be tight. Last week, we issued hard advice to book 100% of summer diesel needs and at least 50% of expected harvest needs. On the basis of Flynn's thoughts and the 1.4 million barrel stocks decline in distillates, we now believe it is prudent to complete booking harvest diesel at current prices.

As if to confirm Flynn's sentiments, we are a penny higher on farm diesel this week. After last week's nickel gain, a penny higher is all it takes to famish our appetite for risk. So go all in today on harvest farm diesel at current prices.

The risk to the downside is that there is a second shutdown. They say that could put us right back where we were a few weeks ago. No air travel, closed import terminals and worldwide stay at home orders. But farm diesel price chartwith all the news of COVID, it is important to remember that the pandemic struck in the climate of a crude oil oversupply. Remember the negative crude futures? The safe money buys diesel now, before the economy can recover further and before refiners turn their attention away from distillate production toward gasoline.

Hear Phil Flynn's own words on the matter. Click here to listen to the audio of our conversation.

Farm Diesel --

  • Our regional average farm diesel price firmed a penny on the week to $1.45 per gallon.
  • Nebraska firmed a dime, Kansas diesel gained 4 cents and Iowa added 2 cents.
  • Offsetting gains, Michigan and Minnesota each softened a penny. South Dakota limited support for our regional average this week. Last week, South Dakota entered a "zero" bid. This week, South Dakota reports a statewide average of $1.39 per gallon. A few cents below our regional average, buffering price support.
  • As mentioned above, EIA reported a 1.4 million barrel decline in national distillate stocks to a level 46.6 million barrels above the same week last year. That data was reported as of Friday, June 12 and this week will likely see a continued drawdown on stocks.
  • Friday morning June 19, front-month WTI crude oil futures opened at $38.05, up $1.79 frompropane price chart the previous Friday's open.
  • This morning, front-month heating oil futures opened at $1.20, up 12 cents from last Friday's open.
  • Our heating oil futures/farm diesel spread has fallen below our line in the sand indicating upside potential is building for retail farm diesel (see chart at bottom).

Propane --

  • Our regional average propane price was unchanged this week at an average of $1.13.
  • Nebraska added 9 cents per gallon as Kansas firmed 6 cents. Ohio softened 6 cents of its own as Iowa, Michigan and Minnesota all fell a penny per gallon.
  • According to EIA, national propane stocks gained 2.685 million barrels and remain roughly 550,000 barrels below the same time last year.

Fuel
6/1/20
6/1/20
Week-over Change
Current Week
Fuel
Farm Diesel
$1.39
$1.44
+1 cent
$1.45
Farm Diesel
LP
$1.19
$1.13
Unchanged
$1.13
LP

heating oil futures/farm diesel spread chart

 

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