Farm Fuels in Focus: Diesel Demand Revs Up

May 26, 2016 01:46 PM

 

  • LP is down 2 cents on the week at 99 cents per gallon. Last year at this time, LP was priced at $1.30 per gallon.
  • July 2016 natural gas opened today at $2.16 -- up 13 cents from our last Fuels in Focus.
  • Farm Diesel is 5 cents higher on the week at an average of $1.78 per gallon. Last year at this time, farm diesel was at $2.31 per gallon.
  • July 2016 WTI crude oil opened the day at $49.70 -- up $3.29 from our last report.
  • June 2016 Heating oil futures opened the day at $1.51 -- 4 cents higher than our last report.

DieselFarm Diesel -- Global diesel demand has been on the rise in recent weeks. As U.S. refiners turned their attention to producing more profitable gasoline, demand for U.S. diesel spiked, and storage withdrawals far outpaced expectations. India is leading demand gains which is giving refiners incentive to devote more attention to distillate production. This, of course, will add support to prices near-term.

Our summer outlook begs the question if increases in distillate refining runs will outpace potential gains in demand. Seasonally, the close of intense spring fieldwork in the U.S. pressures diesel prices. This year, the demand pull from India, the E.U. and other global customers may continue to support prices even when spring fieldwork comes to an end. We have observed the fall price low around the first week of October in the past three years. We will have to watch diesel prices closely through the end of summer because in each of the last three years, prices firmed sharply immediately after the low was placed.

But since prices have sunk so low in wake of crude oil price softness, and global demand is increasing, the seasonals may not follow a typical seasonal path. In the meantime, refiners report dramatic improvements in profit margins which will keep refiners cranking out diesel at high volumes. This complicates our outlook. If crude oil prices fall, and distillate supplies rebalance, we will see diesel prices soften. But crude bulls have the upper hand at present, and we view downside potential for both diesel and crude oil as very limited for the time being.

  • Distillate inventories reported by EIA fell 1.3 million barrels to 150.9 mmbbl. Stocks are currently 22.0 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.59 in Kansas and the Midwest high is at $1.95 in Illinois.
Farm Diesel 5/26/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.56
$1.74
Unchanged
$1.74
Iowa
Illinois
$1.79
$1.79
16 cents
$1.95
Illinois
Indiana
$1.90
$1.90
4 cents
$1.94
Indiana
Wisconsin
$1.92
$1.92
Unchanged
$1.92
Wisconsin
Minnesota
$1.72
$1.76
2 cents
$1.78
Minnesota
South Dakota
$1.85
$1.85
Unchanged
$1.85
South Dakota
North Dakota
$1.51
$1.62
Unchanged
$1.62
North Dakota
Nebraska
$1.55
$1.60
7 cents
$1.67
Nebraska
Missouri
$1.54
$1.54
26 cents
$1.80
Missouri
Kansas
$1.58
$1.58
1 cent
$1.59
Kansas
Ohio
$1.68
$1.68
Unchanged
$1.68
Ohio
Michigan
$1.68
$1.79
Unchanged
$1.79
Michigan
Midwest Average
$1.69
$1.73
5 cents
$1.78
Midwest Average

LP

Propane -- With home heating season over, there isn't much to say about propane. As far as we can tell, infrastructure is still in solid shape and production continues at a pretty good clip. Supplies at present are ample seasonally which should keep prices in line with our expectations through the offseason and into winter 2016-17. We will be watching for the midsummer low to book for winter.

  • According to EIA, last week, national propane inventories fell 0.087 million barrels -- now 0.911 million barrels above the same time last year at 74.129 million barrels.
  • The regionwide low is at $0.85 per gallon in Ohio and the regionwide high is in Indiana at $1.17.
LP 5/26/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.93
$0.89
Unchanged
$0.89
Iowa
Illinois
$1.16
$1.16
-22 cents
$0.94
Illinois
Indiana
$1.17
$1.17
Unchanged
$1.17
Indiana
Wisconsin
$1.10
$1.10
Unchanged
$1.10
Wisconsin
Minnesota
$0.95
$0.97
-2 cents
$0.95
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.89
$0.89
Unchanged
$0.89
North Dakota
Nebraska
$0.88
$0.89
Unchanged
$0.89
Nebraska
Missouri
$1.12
$1.12
Unchanged
$1.12
Missouri
Kansas
$1.08
$1.10
-2 cents
$1.08
Kansas
Ohio
$0.85
$0.85
Unchanged
$0.85
Ohio
Michigan
$1.13
$1.13
Unchanged
$1.13
Michigan
Midwest Average
$1.01
$1.01
-2 cents
$0.99
Midwest Average

 

SpreadsDiesel