Farm Fuels in Focus: Fuel Prices Fade

November 24, 2015 01:29 PM

 

  • LP is down 4 cents on the week to $1.01 per gallon.
  • December 2015 natural gas opened today at $2.20 -- down 13 cents from our last Fuels in Focus.
  • Farm Diesel is 7 cents lower on the week at an average of $2.00 per gallon.
  • January 2016 WTI crude oil opened the day at $42.04 -- $1.01 above our last report.
  • December 2015 Heating oil futures opened the day at $1.38 -- 1 cent lower than our last report.

Farm Diesel -- Refining capacity utilization is on the rise as seasonal maintenance comes to an end. You have probably noticed your local fuel prices falling at the pump. The same is true of farm diesel although this week's sharply lower price was driven by downside action in Michigan, Indiana and Nebraska. We had expected prices to retreat once seasonal maintenance was complete but prices have fallen faster than we had expected. That being the case, diesel may have another dime to give regionally by Christmas.

11242015DieselOn the crude oil side, the current global glut based on what amounts to a production war worldwide may find its demise in the lack of new projects being planned. New projects have been dismissed as investors eye low crude oil returns and opt against exploration, drilling new wells or laying out fresh capital. Supplies and production are each in position to maintain the overhang for now, but in a few years, the crude oil fundamentals could see a dramatic shift, spurring global prices higher.

The Saudis have recently said they will not cut back on their production which remains very high. OPEC is taking a "you first" approach to trimming production and each non-Saudi nation is dealing with its own balance sheets. No-one wants to be the first to cut production because, as farmers know, in a low price environment, a producer must make up the difference in volume. The glut will right itself and if prices skyrocket because of lagging new entries, that could take several years to remedy.

In the meantime, farm diesel is pointed bearishly sideways. Seasonally we have found good opportunities to book for the coming spring around Christmas. We will be watching distillate production and refinery activity along with our heating oil spread analysis for indications of a price floor.

  • Distillate inventories reported by EIA fell 0.8 million barrels to 140.3 mmbbl. Stocks are currently 25.5 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.81 in Nebraska and the Midwest high is at $2.23 in Wisconsin.
Farm Diesel 11/24/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.90
$1.94
-1 cent
$1.93
Iowa
Illinois
$2.15
$2.15
Unchanged
$2.15
Illinois
Indiana
$2.35
$2.30
-8 cents
$2.22
Indiana
Wisconsin
$2.33
$2.33
-10 cents
$2.23
Wisconsin
Minnesota
$2.08
$2.06
-4 cents
$2.02
Minnesota
South Dakota
$1.96
$1.98
Unchanged
$1.98
South Dakota
North Dakota
$1.97
$1.99
-1 cent
$1.98
North Dakota
Nebraska
$1.89
$1.88
-7 cents
$1.81
Nebraska
Missouri
$2.01
$1.84
-1 cent
$1.83
Missouri
Kansas
$1.91
$1.91
-4 cents
$1.87
Kansas
Ohio
$2.43
$2.04
Unchanged
$2.04
Ohio
Michigan
$2.44
$2.39
-41 cents
$1.98
Michigan
Midwest Average
$2.12
$2.07
-7 cents
$2.00
Midwest Average

11242015LP

Propane -- Propane remains in good supply with current stocks 23 million barrels above the same time last year. Production dipped just slightly on the week as demand perked up for a Midwest snowstorm.

Michigan propane drove our price action in propane this week falling 46 cents per gallon to 83 cents. That suggest states like Illinois, Indiana and Wisconsin may follow suit and settle on a price at or below $1.00 per gallon. So far, we have been forecasting next year's offseason price above this year's, but if LP production holds up, robust supplies will provide a wet blanket for propane prices.

  • According to EIA, last week, national propane inventories firmed 0.495 million barrels -- now 23.317 million barrels above the same time last year at 104.469 million barrels.
  • The regionwide low is at $0.83 per gallon in Michigan and the regionwide high is in Illinois at $1.26.
LP 11/24/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.00
$1.00
Unchanged
$1.00
Iowa
Illinois
$1.26
$1.26
Unchanged
$1.26
Illinois
Indiana
$1.15
$1.21
Unchanged
$1.21
Indiana
Wisconsin
$1.12
$1.18
Unchanged
$1.18
Wisconsin
Minnesota
$0.97
$0.97
2 cents
$0.99
Minnesota
South Dakota
$0.89
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.93
$0.93
Unchanged
$0.93
North Dakota
Nebraska
$0.90
$0.89
-9 cents
$0.80
Nebraska
Missouri
$1.14
$1.14
Unchanged
$1.14
Missouri
Kansas
$0.91
$0.91
3 cents
$0.94
Kansas
Ohio
$0.89
$0.89
Unchanged
$0.89
Ohio
Michigan
$1.29
$1.29
-46 cents
$0.83
Michigan
Midwest Average
$1.04
$1.05
-4 cents
$1.01
Midwest Average

 

11242015HOSpread