Farm Fuels in Focus: All Eyes on Crude Oil

January 26, 2016 11:29 AM
  • LP is a penny higher on the week at $1.02 per gallon.
  • February 2016 natural gas opened today at $2.14 -- up 5 cents from our last Fuels in Focus.
  • Farm Diesel is 1 cent lower on the week at an average of $1.59 per gallon.
  • March 2016 WTI crude oil opened the day at $29.81 -- higher 24 cents from our last report.
  • February 2016 Heating oil futures opened the day at 92 cents -- 2 cents higher than our last report.

Farm Diesel -- Farm diesel was slightly lower this week as all eyes are on the crude oil market. Sentiment in the crude oil market has tipped in favor of bulls according to commitments of traders. The fundamentals, however, appear to favor softer price action. According to EIA, U.S. crude oil stocks firmed last week by 4 million barrels. Iran is now forecast to add up to 3.1 million barrels per day to global stocks, and Iraq has noted it will increase its production output to 4 million barrels per day. U.S. production is expected to fall slightly through the next two years, but will still remain above 8 million barrels per day.

FarmDieselBulging global stocks amid sinking demand prospects make a bullish case hard to make. This week we have seen signs of mild strength in the commodity sector as corn, beans and wheat claw higher, bit by bit. Terms like 'relief rally' and 'selling fatigue' have been kicked around a lot as crude waffles between $28 and $32 per barrel. We have seen the limits of a short-covering rally in grains, and as WTI dipped into 2 handle territory it is likely that at least a portion of price support was shorts covering positions. We know that short-covering rallies tend to fade quickly and the failure of WTI to firm even as high as $35 suggests sideways to lower price action in crude.

Heating oil futures have been very resilient given the huge winter storm that blanketed the East Coast with deep snow. The February contract popped a penny above $1.00 on Monday, but has since fallen back as low as 90 cents. Distillate stocks reported by EIA are at the very top end of the five-year average.

Current WTI and heating oil fundamentals favor sideways to lower diesel near-term, but it does feel like these markets are awaiting a turning point. As many states were higher in this week's survey as lower with five states unchanged. Indiana led upside action, firming 19 cents per gallon. Diesel may be placing a price floor here, but we will wait for confirmation before pulling the trigger for spring.

I do know there are deals to be had right now. I would recommend you get in touch with your diesel retailer and find out what he can do for you for spring delivery.

  • Distillate inventories reported by EIA fell 1.0 million barrels to 164.5 mmbbl. Stocks are currently 28.0 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.42 in Nebraska & Kansas and the Midwest high is at $1.79 in Indiana.
Farm Diesel 1/26/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.64
$1.50
-3 cents
$1.47
Iowa
Illinois
$1.56
$1.56
Unchanged
$1.56
Illinois
Indiana
$1.85
$1.74
5 cents
$1.79
Indiana
Wisconsin
$2.14
$1.69
Unchanged
$1.69
Wisconsin
Minnesota
$1.64
$1.65
-1 cent
$1.64
Minnesota
South Dakota
$1.70
$1.58
4 cents
$1.62
South Dakota
North Dakota
$1.89
$1.66
Unchanged
$1.66
North Dakota
Nebraska
$1.46
$1.46
-4 cents
$1.42
Nebraska
Missouri
$1.47
$1.67
Unchanged
$1.67
Missouri
Kansas
$1.51
$1.51
-9 cents
$1.42
Kansas
Ohio
$1.54
$1.54
Unchanged
$1.54
Ohio
Michigan
$1.59
$1.59
-3 cents
$1.56
Michigan
Midwest Average
$1.67
$1.60
-1 cent
$1.59
Midwest Average

LP

Propane -- No change in propane and the winter weather out east did little to support LP prices regionally. National stocks fell during the week, but supplies are well above the five-year average which will keep a fundamental lid on prices. Our outlook calls for mild volatility based on weather related demand spikes through the remainder of winter, and lower prices in June or July. We suspect LP to come in below last year's offseason price at that time.

  • According to EIA, last week, national propane inventories fell 1.915 million barrels -- now 18.697 million barrels above the same time last year at 89.943 million barrels.
  • The regionwide low is at $0.89 per gallon in South Dakota and the regionwide high is in Indiana at $1.52.
LP 1/20/16
Three Weeks Ago
Previous Week
Change
Current Week
$1.19$
Iowa
$0.90
$0.91
3 cents
$0.94
Iowa
Illinois
$0.94
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.26
$1.33
19 cents
$1.52
Indiana
Wisconsin
$1.18
$1.00
Unchanged
$1.00
Wisconsin
Minnesota
$1.00
$1.00
-1 cent
$0.99
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.93
$0.93
-2 cents
$0.91
North Dakota
Nebraska
$0.92
$0.92
1 cent
$0.93
Nebraska
Missouri
$1.16
$1.14
-4 cents
$1.10
Missouri
Kansas
$0.92
$0.92
1 cent
$0.93
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$1.19
$1.19
Unchanged
$1.19
Michigan
Midwest Average
$1.02
$1.01
1 cent
$1.02
Midwest Average

 

Index