Farm Fuels in Focus: Diesel Falls as Crude Oil Tanks

January 20, 2016 03:36 PM

 

  • LP is a penny lower on the week at $1.01 per gallon.
  • February 2016 natural gas opened today at $2.09 -- down 27 cents from our last Fuels in Focus.
  • Farm Diesel is 7 cents lower on the week at an average of $1.60 per gallon.
  • March 2016 WTI crude oil opened the day at $29.47 -- lower $1.64 from our last report.
  • February 2016 Heating oil futures opened the day at 90 cents -- 10 cents lower than our last report.

Farm Diesel -- WTI crude oil finally dipped below $30 per barrel in a price skid that spilled over into broader commodities, equities and stocks. While the near-term implications for commodity and outside markets are grim, farm diesel prices have benefited greatly. We expect WTI to flirt with $25 per barrel and perhaps even test a level closer to $20. The key is the macro-economic picture and the way traders view the way global economies with China now at the forefront continue to flounder and struggle to maintain growth and stabilize currencies. Global oil prices will not firm significantly until the global economy is on more stable footing. Getting to that point may be a long haul and then just maintaining stability will be another hurdle.

dieselIn the mean time, take advantage of low farm diesel prices. We have not yet seen the price low in retail farm diesel and it is a safe bet to say that crude oil has also yet to bottom. We do expect volatility to remain high, but a range between $25 and $30 per barrel has not yet been figured into fuels pricing meaning even if oil prices firm unexpectedly in the next few days, farm diesel, since it is a finished product, will lag the trend. It might not be a bad time to look for some on-farm diesel storage.

EIA will release crude oil production and supply data in tomorrow's delayed Petroleum Report. It may be a temporary market mover, but the fundamentals in both crude and distillates point to steady prices with a downside bias. Rumors are becoming more common that OPEC will meet ahead of its previously scheduled June meeting to discuss supply and production targets. Such a meeting would grab the attention of traders who would likely even positions ahead of that meeting, if it does take place. For now, we expect rangebound crude oil trade between $25 and $35 per barrel with front-month heating oil futures holding below key $1.00. That levers for steady to slightly softer farm diesel near-term.

  • Distillate inventories reported by EIA firmed 6.1 million barrels to 165.6 mmbbl. Stocks are currently 25.7 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.46 in Nebraska and the Midwest high is at $1.74 in Indiana.
Farm Diesel 1/20/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.66
$1.64
-14 cents
$1.50
Iowa
Illinois
$1.56
$1.56
Unchanged
$1.56
Illinois
Indiana
$1.85
$1.85
-11 cents
$1.74
Indiana
Wisconsin
$2.14
$2.14
-45 cents
$1.69
Wisconsin
Minnesota
$1.72
$1.64
1 cents
$1.65
Minnesota
South Dakota
$1.70
$1.70
-12 cents
$1.58
South Dakota
North Dakota
$1.89
$1.89
-23 cents
$1.66
North Dakota
Nebraska
$1.46
$1.46
Unchanged
$1.46
Nebraska
Missouri
$1.47
$1.47
20 cents
$1.67
Missouri
Kansas
$1.60
$1.51
Unchanged
$1.51
Kansas
Ohio
$1.69
$1.54
Unchanged
$1.54
Ohio
Michigan
$1.61
$1.59
Unchanged
$1.59
Michigan
Midwest Average
$1.70
$1.67
-7 cents
$1.60
Midwest Average

LP

Propane -- No change in our propane outlook. Supplies remain more than ample, well above the five-year average and readily available. Prices may respond higher in the Eastern Belt if forecasts for a late week snowstorm are realized. But a weather driven propane rally will fade once the storm passes and temperatures in the Midwest warm.

Longer-term, since crude oil and distillates are priced so low, we may see propane prices below last year's offseason low by July. Currently the weather is about the only thing supporting propane prices and without freezing temperatures and homeowners reaching for the thermostat, LP may be set to plunge once seasonal demand is in the rear view mirror.

  • According to EIA, last week, national propane inventories fell 4.483 million barrels -- now 17.005 million barrels above the same time last year at 91.858 million barrels.
  • The regionwide low is at $0.89 per gallon in South Dakota and the regionwide high is in Indiana at $1.33.
LP 1/20/16
Three Weeks Ago
Previous Week
Change
Current Week
$1.19$
Iowa
$0.90
$0.90
1 cent
$0.91
Iowa
Illinois
$0.94
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.26
$1.26
7 cents
$1.33
Indiana
Wisconsin
$1.18
$1.18
-18 cents
$1.00
Wisconsin
Minnesota
$1.00
$1.00
Unchanged
$1.00
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.93
$0.93
Unchanged
$0.93
North Dakota
Nebraska
$0.89
$0.92
Unchanged
$0.92
Nebraska
Missouri
$1.16
$1.16
-2 cents
$1.14
Missouri
Kansas
$0.92
$0.92
Unchanged
$0.92
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$1.19
$1.19
Unchanged
$1.19
Michigan
Midwest Average
$1.01
$1.02
-1 cent
$1.01
Midwest Average

 

Index