Farm Fuels in Focus: Crude Oil and Heating Oil Futures Soften

February 2, 2016 11:26 AM
  • LP is unchanged on the week at $1.02 per gallon.
  • March 2016 natural gas opened today at $2.13 -- down 1 cent from our last Fuels in Focus.
  • Farm Diesel is 3 cents lower on the week at an average of $1.56 per gallon.
  • March 2016 WTI crude oil opened the day at $31.37 -- higher $1.56 from our last report.
  • March 2016 Heating oil futures opened the day at $1.04 -- 12 cents higher than our last report.

RubyFarm Diesel -- Last week crude oil and heating oil futures firmed sharply leading many to suspect the bottom was placed. The move higher in crude oil futures was based on short covering and on rumors of an OPEC production cut. With the addition of Iranian supplies, OPEC's output is now at 32.60 million barrels per day, roughly 1 million barrels per day above expected demand. OPEC has said it will not meet ahead of its regularly scheduled June meeting to cut production, and the global glut will continue to build. Weak economic data out of China will continue to sway the oil market on softer demand prospects from that key consumer.

Until production slows or global economies including the U.S. revive in a measurable way, oil prices will be hard pressed to find support outside of the movements of managed money and speculative trade. Heating oil futures put a mild draw on distillate supplies nationally in wake of the east coast blizzard. But according to our analysis, front month heating oil futures have to firm to $1.27 before farm diesel will respond higher. Today, heating oil and crude are lower on the realities of global economic softness and burdensome supplies.

We have seen crude oil adopt a semi-predictable trading range at various levels and we believe the same will be true right around $30 per barrel. That will hold heating oil in a range around $1.00, sending farm diesel on a sideways trajectory. As spring fieldwork begins, expect diesel to firm on farmer demand. We recommend you book diesel at or below $1.10 per gallon for spring. In Indiana, where prices tend to hold a premium to the rest of the Midwest, look for $1.20 or below.

  • Distillate inventories reported by EIA fell 4.1 million barrels to 160.5 mmbbl. Stocks are currently 27.8 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.37 in Nebraska and the Midwest high is at $1.73 in Indiana.
Farm Diesel 2/2/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.50
$1.47
Unchanged
$1.47
Iowa
Illinois
$1.56
$1.56
-3 cents
$1.53
Illinois
Indiana
$1.74
$1.79
-6 cents
$1.73
Indiana
Wisconsin
$1.69
$1.69
Unchanged
$1.63
Wisconsin
Minnesota
$1.65
$1.64
-1 cent
$1.63
Minnesota
South Dakota
$1.58
$1.62
Unchanged
$1.62
South Dakota
North Dakota
$1.66
$1.66
Unchanged
$1.66
North Dakota
Nebraska
$1.46
$1.42
-5 cents
$1.37
Nebraska
Missouri
$1.67
$1.67
Unchanged
$1.67
Missouri
Kansas
$1.51
$1.42
Unchanged
$1.42
Kansas
Ohio
$1.54
$1.54
Unchanged
$1.54
Ohio
Michigan
$1.59
$1.56
-12 cents
$1.44
Michigan
Midwest Average
$1.60
$1.59
-3 cents
$1.56
Midwest Average

LP

Propane -- National propane supplies took a dive in EIA's most recent Petroleum Report. That comes as no surprise at this time of year, but prices are unchanged this week with very little movement from state to state. Michigan firmed 6 cents and Indiana fell 7 cents per gallon. Missouri and Nebraska traded gains and declines of one and two cents and the rest of our survey region was unchanged. Unchanged at the retail level despite a significant draw on stocks suggests supplies are strong enough to meet demand.

We expect more of the same type of price action in the coming weeks. This week's snowstorm in the Midwest will excite demand and will likely add short-term support to propane prices in areas impacted by the storm. But once the storm passes, prices are likely to face pressure from large national stocks.

PhilBy the way, on this Groundhog day, Punxsutawney Phil did not see his shadow, forecasting an early spring. If Phil is correct, an early spring would be bullish on propane supplies, and bearish on LP price heading into the summer offseason. This levers for my belief that this year's propane price during the offseason may be below last summer's price low.

  • According to EIA, last week, national propane inventories fell 6.248 million barrels -- now 14.387 million barrels above the same time last year at 83.695 million barrels.
  • The regionwide low is at $0.89 per gallon in South Dakota and the regionwide high is in Indiana at $1.45.
LP 2/2/16
Three Weeks Ago
Previous Week
Change
Current Week
$1.19$
Iowa
$0.91
$0.94
Unchanged
$0.94
Iowa
Illinois
$0.94
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.33
$1.52
-7 cents
$1.45
Indiana
Wisconsin
$1.00
$1.00
Unchanged
$1.00
Wisconsin
Minnesota
$1.00
$0.99
Unchanged
$0.99
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.93
$0.91
Unchanged
$0.91
North Dakota
Nebraska
$0.92
$0.93
-2 cents
$0.91
Nebraska
Missouri
$1.14
$1.10
1 cent
$1.11
Missouri
Kansas
$0.92
$0.93
Unchanged
$0.93
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$1.19
$1.19
6 cents
$1.25
Michigan
Midwest Average
$1.01
$1.02
Unchanged
$1.02
Midwest Average

Index


 

Punxsutawney phil photo credit: KWWL.com