Farm Fuels in Focus: LP Price Flat as Exports Surge

December 1, 2015 12:38 PM

 

  • LP is unchanged on the week to $1.01 per gallon.
  • January 2015 natural gas opened today at $2.23 -- up 3 cents from our last Fuels in Focus.
  • Farm Diesel is unchanged on the week at an average of $2.00 per gallon.
  • January 2016 WTI crude oil opened the day at $41.73 -- 31 cents below our last report.
  • January 2015 Heating oil futures opened the day at $1.36 -- 2 cents lower than our last report.

Farm Diesel -- Unchanged at 2 bucks per gallon regionally. I wrote last week that I had expected our regional average to fall to $2.00 per gallon, but not until Christmas. Prices firmed beginning in early October as a result of refinery maintenance and we had expected the completion of that maintenance to pressure prices. It was eastern Belt states that firmed the most through that period and they have retraced most if not all of what was gained. That suggests farm diesel prices will level off although we maintain a bearish bias near-term.

1212015DieselAs refineries resume production, distillate supplies will firm, availability will improve regionally and since harvest demand has long since dried up, little is left to add short-term support to prices beyond refining margins. It may take softer crude oil prices to spur diesel down its last pre-Christmas leg. OPEC producers will meet later this week. Click here to read my thoughts on what that might mean from this week's InputsMonitor.com.

The long and short of it is that for the time being, end-users of petroleum products -- like gasoline, propane and diesel -- will continue to enjoy low prices until the crude oil hits the fan. There is a case for longer term strength in crude oil and given market fundamentals, a spike in a few years is a real possibility.

Our heating oil/farm diesel spread (see chart below) gives us no reason to be bullish diesel near-term, and since supplies are quickly recovering after seasonal maintenance, we may see sub-$2.00 gasoline by Christmas.

  • Distillate inventories reported by EIA firmed 1.0 million barrels to 141.4 mmbbl. Stocks are currently 28.2 mmbbl above the same time last year.
  • The regionwide low currently lies at $1.83 in Nebraska & Missouri and the Midwest high is at $2.22 in Indiana.
Farm Diesel 12/1/15
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.94
$1.93
-4 cents
$1.89
Iowa
Illinois
$2.15
$2.15
Unchanged
$2.15
Illinois
Indiana
$2.30
$2.22
Unchanged
$2.22
Indiana
Wisconsin
$2.33
$2.23
-5 cents
$2.18
Wisconsin
Minnesota
$2.06
$2.02
-1 cent
$2.01
Minnesota
South Dakota
$1.98
$1.98
Unchanged
$1.98
South Dakota
North Dakota
$1.99
$1.98
Unchanged
$1.98
North Dakota
Nebraska
$1.88
$1.81
2 cents
$1.83
Nebraska
Missouri
$1.84
$1.83
Unchanged
$1.83
Missouri
Kansas
$1.91
$1.87
-1 cent
$1.86
Kansas
Ohio
$2.04
$2.04
Unchanged
$2.04
Ohio
Michigan
$2.39
$1.98
Unchanged
$1.98
Michigan
Midwest Average
$2.07
$2.00
Unchanged
$2.00
Midwest Average

 

Propane -- Propane supplies continue to build. We are unchanged this week even though the mercury has fallen a few degrees. Propane market fundamentals currently favor the consumer and if supplies continue to build, our forecast for next summer's low to be above this year's may need to be revisited. As supplies in the Midwest have firmed, propane exports have exploded. EIA reports during September (its most recently published data) LP exports rose to a record 739,000 barrels per day. That is a 60% increase since the same time last year and a 23% increase over the prior month. Propane is pretty well divided between supplies for export and supplies for domestic consumption. That will help limit the impacts of sharply higher exports on national supplies and Midwestern retail prices.

prstussCurrently, propane sold onto the export market are offering a premium to domestic storage with exporters offering 43 cents for December 2015 propane delivered to Mont Belvieu while LP delivered to Conway, Kansas brings 38 cents. That nickel premium will attract some propane, but since the divide is narrow, refiners will lean more on proximity than price when determining where to sell. That suggests sideways pricing ahead for Midwest retail propane, although, if the weather turns bitterly cold, demand for home heat could support a slight price increase. At right, I have included the most recent U.S. propane stocks graph from EIA. As you can see, there is plenty of propane to be had.

  • According to EIA, last week, national propane inventories firmed 1.733 million barrels -- now 27.001 million barrels above the same time last year at 106.202 million barrels.
  • The regionwide low is at $0.83 per gallon in Michigan and the regionwide high is in Illinois at $1.26.
LP 12/1/15
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
$1.21
$1.21
Unchanged
$1.21
Indiana
Wisconsin
$1.18
$1.18
Unchanged
$1.18
Wisconsin
Minnesota
$0.97
$0.99
2 cents
$1.01
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
$0.80
7 cents
$0.87
Nebraska
Missouri
$1.14
$1.14
Unchanged
$1.14
Missouri
Kansas
$0.91
$0.94
-2 cents
$0.92
Kansas
Ohio
$0.89
$0.89
Unchanged
$0.89
Ohio
Michigan
$1.29
$0.83
Unchanged
$0.83
Michigan
Midwest Average
$1.05
$1.01
Unchanged
$1.01
Midwest Average

 

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