Farm Fuels in Focus: Fuels Carry Bearish Bias

January 5, 2016 12:57 PM

 

  • LP is 3 cents lower on the week at $1.01 per gallon.
  • February 2016 natural gas opened today at $2.29 -- up 37 cents from our last Fuels in Focus.
  • Farm Diesel is 5 cents lower on the week at an average of $1.70 per gallon.
  • February 2016 WTI crude oil opened the day at $36.90 -- higher $1.10 from our last report.
  • February 2016 Heating oil futures opened the day at $1.13 -- 4 cents higher than our last report.

Farm Diesel -- Rangebound crude oil prices continue to limit farm diesel price strength. WTI crude prices have been below $50 per barrel since mid-October. The February contract tested resistance early in November right at $50, but failed to violate and has since trended lower into the mid-$30's per barrel, where we are today. That will continue to limit farm diesel pricing. Also limiting diesel price support are growing distillate stocks in the U.S. Since this winter has thus far been relatively mild, heating oil demand has slipped allowing stocks to build. Our heating oil. Farm diesel spread gives us no reason to believe that farm diesel will firm any time soon.

DieselRetail price action over the past few weeks also levers for limited diesel price support. All states this week are unchanged or lower. Once the downside has been exhausted in retail diesel prices, we will begin to see slight upticks from state to state, usually beginning with the eastern Corn Belt. Ohio and Michigan are unchanged on the week and Illinois and Indiana are lower -- Indiana farm diesel fell 21 cents this week. With so much downward momentum built into our Midwestern price survey, there is a greater possibility that prices will soften rather than firm.

Crude oil, distillate stocks and retail diesel price action all suggest at least mild declines in the coming weeks. We advise you fill diesel needs hand-to-mouth until we get a clear indication of a price low. We expect low prices to continue through 2016 although demand will be a source of mild support ahead of spring fieldwork so we will look to book some diesel ahead of the seasonal demand push.

  • Distillate inventories reported by EIA firmed 1.8 million barrels to 153.1 mmbbl. Stocks are currently 27.4 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.46 in Nebraska and the Midwest high is at $2.14 in Wisconsin.
Farm Diesel 1/5/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.79
$1.72
-6 cents
$1.66
Iowa
Illinois
$1.82
$1.77
-21 cents
$1.56
Illinois
Indiana
$1.99
$1.86
-1 cent
$1.85
Indiana
Wisconsin
$2.14
$2.14
Unchanged
$2.14
Wisconsin
Minnesota
$1.93
$1.81
-9 cents
$1.72
Minnesota
South Dakota
$1.84
$1.84
-14 cents
$1.70
South Dakota
North Dakota
$1.90
$1.90
-1 cent
$1.89
North Dakota
Nebraska
$1.83
$1.46
Unchanged
$1.46
Nebraska
Missouri
$1.54
$1.54
-7 cents
$1.47
Missouri
Kansas
$1.64
$1.60
Unchanged
$1.60
Kansas
Ohio
$1.69
$1.69
Unchanged
$1.69
Ohio
Michigan
$1.65
$1.61
Unchanged
$1.61
Michigan
Midwest Average
$1.81
$1.75
-5 cents
$1.70
Midwest Average

 

Propane -- It is encouraging to see Minnesota propane prices fall 16 cents this week. An unprecedented decline in the grip of winter, but as with crude oil and heating oil, national propane stocks have swelled to well above the five year average range. Large stocks will limit price strength near-term but the weather forecast LPcalls for some bitterly cold temperatures and an increase in precipitation in the coming week through the nation's midsection. That may urge propane prices slightly higher, but without a major, sustained demand push related to the weather propane has little reason to firm.

The retail side is very similar to farm diesel. All states in this week's survey are unchanged or lower. No states firmed this week but only two states posted lower weekly prices. That means the downtrend may be exhausted. Retail LP prices have been rangebound between $1.00 and $1.06 for several weeks. If more states had fallen this week, it would make a better case for lower near-term prices, but with so many states unchanged, the tables may turn and the downtrend may reverse seasonally. If that turns out to be the case, we may be higher next week, but not by much.

Propane stocks and propane price action this week suggest at least sideways price action ahead with a mildly bullish bias. But we do not expect sharply higher prices until the national supply overhang is trimmed. For now, there is no urgency to book propane for reasons of price. Let me take a moment to remind you not to allow your tanks to run too low as it may be difficult to get propane delivered if the weather turns sour. We will keep you up to speed and alert you to any suggestion that propane prices are headed higher.

  • According to EIA, last week, national propane inventories firmed 0.096 million barrels -- now 20.490 million barrels above the same time last year at 97.734 million barrels.
  • The regionwide low is at $0.89 per gallon in Nebraska & South Dakota and the regionwide high is in Indiana at $1.26.
LP 1/5/16
Three Weeks Ago
Previous Week
Change
Current Week
$1.19$
Iowa
$0.97
$0.95
-5 cents
$0.90
Iowa
Illinois
$1.29
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.39
$1.26
Unchanged
$1.26
Indiana
Wisconsin
$1.18
$1.18
Unchanged
$1.18
Wisconsin
Minnesota
$1.15
$1.16
-16 cents
$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
$0.89
Unchanged
$0.89
Nebraska
Missouri
$1.16
$1.16
Unchanged
$1.16
Missouri
Kansas
$0.94
$0.92
Unchanged
$0.92
Kansas
Ohio
$0.95
$0.95
Unchanged
$0.95
Ohio
Michigan
$0.98
$1.19
Unchanged
$1.19
Michigan
Midwest Average
$1.06
$1.04
-3 cents
$1.01
Midwest Average

 

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