Farm Fuels in Focus: Fuels Firm as Energies Fade

October 27, 2015 12:22 PM

 

  • LP is up 1 cent on the week to $1.05 per gallon.
  • November 2015 natural gas opened today at $2.07 -- down 42 cents from our last Fuels in Focus.
  • Farm Diesel is up a penny on the week at an average of $2.11 per gallon.
  • December 2015 WTI crude oil opened the day at $43.78 -- $2.10 above our last report.
  • November 2015 Heating oil futures opened the day at $1.42 -- 5 cents lower than our last report.

Farm Diesel -- EIA estimates as much as 13% of Midwestern distillate refinery capacity is off-line for October maintenance -- both planned and unplanned. We saw a sharp price response in some Eastern Belt states. This week, Nebraska led gains in diesel, firming 8 cents per gallon to $1.99. When distillate supplies dip in one part of the Midwest, it is not uncommon for supplies from other areas to be diverted to fill the supply gap, but the Gulf Coast will account for most of the replacement distillate. The chart at right shows a slight increase is not uncommon this time of year and once distillate units come back online, farm diesel is expected to come under pressure once again.

10272015DieselWe have 30% of our spring diesel booked and we are comfortable there. Energy markets have been subject to fund activity as the seasonals are considered by some to be an easy trade. However, natural gas and heating oil futures have fallen sharply this week in response to a fair weather near-term forecast. (click here for more) Our heating oil spread is very wide suggesting limited upside risk near-term for diesel. Diesel is, however, currently responding to refining fundamentals rather than technical trade. Wait out current price strength and remain hand-to-mouth for the time being.

WTI crude gave us a scare in early October, firming to a few dimes above $50.00 per barrel. That was as much in response to forecasts calling for a mild drop in U.S. crude production in 2016 as actual crude fundamentals. Drillers will reset their margins at the flip of the calender to 2016 and that may influence WTI prices higher. OPEC is on course to remain at the high end of production capacity despite waning global demand for crude and refined products. As farm diesel responds to the fundamentals in the market, crude will be more subject to fund activity and the attitudes of traders. That will mean higher volatility, but the truth of the U.S. crude oil market seems to be told in a whisper by heating oil futures, which are giving us zero indication of firmer diesel beyond the impacts of temporary outages at refineries.

  • Distillate inventories reported by EIA fell 2.6 million barrels to 145.0 mmbbl. Stocks are currently 19.3 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.81 in Missouri and the Midwest high is at $2.43 in Ohio.
Farm Diesel 10/27/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.98
$1.99
-2 cents
$1.97
Iowa
Illinois
$2.12
$2.13
Unchanged
$2.13
Illinois
Indiana
$2.08
$2.41
Unchanged
$2.41
Indiana
Wisconsin
$2.18
$2.18
Unchanged
$2.18
Wisconsin
Minnesota
$2.02
$2.07
3 cents
$2.10
Minnesota
South Dakota
$2.02
$1.95
Unchanged
$1.95
South Dakota
North Dakota
$1.95
$1.95
2 cents
$1.97
North Dakota
Nebraska
$1.90
$1.91
8 cents
$1.99
Nebraska
Missouri
$1.81
$1.84
3 cents
$1.81
Missouri
Kansas
$1.91
$1.91
5 cents
$1.96
Kansas
Ohio
$1.98
$2.43
Unchanged
$2.43
Ohio
Michigan
$2.07
$2.39
1 cent
$2.40
Michigan
Midwest Average
$2.00
$2.10
1 cent
$2.11
Midwest Average

 

10272015LPPropane -- Lower natural gas futures pricing will keep a tight lid on propane prices. Between lower natural gas prices amid robust U.S. production and already strong national supplies of propane, we expect minimal upside price risk near-term. throw in the National Weather Service's forecast for a mild November through January, and this week's penny may be about the extent of seasonal price strength. That forecast does set us up for a surprise if forecasters are incorrect. Hand-to-mouth demand in response to a cold snap will influence prices higher, but Midwesterners are generally well prepared for that eventuality, and business was brisk in the offseason.

We maintain our propane price forecast for the coming year which puts the price per gallon above this year's only slightly, thanks to generally bearish fundamentals. With a low price natural gas kicker, we may end up at the same low price point in July 2016 as we saw in summer 2015. Propane has been a supply and demand driven market through recent winters and that will remain the case until something happens to change the fundamental landscape of inexpensive production inputs, hefty on-farm stocks and strong U.S. supplies.

  • According to EIA, last week, national propane inventories fell 0.577 million barrels -- now 19.975 million barrels above the same time last year at 101.587 million barrels.
  • The regionwide low is at $0.84 per gallon in Ohio and the regionwide high is in Illinois at $1.29.
LP 10/27/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$0.99
$0.98
-1 cent
$0.97
Iowa
Illinois
$1.25
$1.29
Unchanged
$1.29
Illinois
Indiana
$1.03
$1.24
2 cents
$1.26
Indiana
Wisconsin
$1.10
$1.10
Unchanged
$1.10
Wisconsin
Minnesota
$0.96
$0.99
-2 cents
$0.97
Minnesota
South Dakota
$0.79
$0.89
Unchanged
$0.89
South Dakota
North Dakota
$0.83
$0.93
Unchanged
$0.93
North Dakota
Nebraska
$0.89
$0.94
10 cents
$1.04
Nebraska
Missouri
$1.04
$1.10
-1 cent
$1.09
Missouri
Kansas
$0.93
$0.93
1 cent
$0.94
Kansas
Ohio
$0.84
$0.84
Unchanged
$0.84
Ohio
Michigan
$1.23
$1.28
Unchanged
$1.28
Michigan
Midwest Average
$0.99
$1.04
1 cent
$1.05
Midwest Average

 

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