Farm Fuels in Focus: Technical Action Suggests Lower Diesel

January 12, 2016 11:39 AM
  • LP is a penny higher on the week at $1.02 per gallon.
  • February 2016 natural gas opened today at $2.36 -- up 7 cents from our last Fuels in Focus.
  • Farm Diesel is 3 cents lower on the week at an average of $1.67 per gallon.
  • February 2016 WTI crude oil opened the day at $31.11 -- lower $5.79 from our last report.
  • February 2016 Heating oil futures opened the day at $1.00 -- 13 cents lower than our last report.

dieselFarm Diesel -- Declines in crude oil and heating oil futures signal continued price softness in retail farm diesel. Read more of the specifics in an piece I wrote for the Inputs Monitor titled, "Heating Oil Futures Break Below $1.00". Since heating oil and crude are both well supplied in the U.S., a look at the technicals is prudent. $30.00 crude is strong psychological support, stronger even than $1.00 heating oil futures. WTI did break through key $30 per barrel and fell as low as $29.88 before firming back up into $30 territory.

But as we wondered if heating oil futures could soften through $1.00, we watched the contract first test $1.00 and reject it and then soften to 98 cents. That may be an indication from the technical perspective that crude wants to do the same thing -- test the waters below $30, retrace and then soften in earnest back below $30 in a sustained bear run. Remember that WTI crude is most comfortable in rangebound trade and with the fundamentals so strongly in favor of the downside, technical traders will look to play the range.

Rangebound crude oil and a sustained price path around $30 per barrel will certainly keep farm diesel prices in check, and if heating oil futures can manage to hang in there below $1.00, the outlook for diesel becomes even more favorable. Stay hand-to-mouth for the time being. You may want to just go ahead and fill your spring needs at these prices, and given how low farm diesel prices are around the Midwest, I wouldn't have any reason to try and talk you out of it. On the flip side, we do not expect farm diesel to firm in the near future.

  • Distillate inventories reported by EIA firmed 6.3 million barrels to 159.4 mmbbl. Stocks are currently 22.5 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 1/12/16
Three Weeks Ago
Previous Week
Change
Current Week
 
Iowa
$1.72
$1.66
-2 cents
$1.64
Iowa
Illinois
$1.77
$1.56
Unchanged
$1.56
Illinois
Indiana
$1.86
$1.85
Unchanged
$1.85
Indiana
Wisconsin
$2.14
$2.14
Unchanged
$2.14
Wisconsin
Minnesota
$1.81
$1.72
-8 cents
$1.64
Minnesota
South Dakota
$1.84
$1.70
Unchanged
$1.70
South Dakota
North Dakota
$1.90
$1.89
Unchanged
$1.89
North Dakota
Nebraska
$1.46
$1.46
Unchanged
$1.46
Nebraska
Missouri
$1.54
$1.47
Unchanged
$1.47
Missouri
Kansas
$1.60
$1.60
-9 cents
$1.51
Kansas
Ohio
$1.69
$1.69
-15 cents
$1.54
Ohio
Michigan
$1.61
$1.61
-2 cents
$1.59
Michigan
Midwest Average
$1.75
$1.70
-3 cents
$1.67
Midwest Average

LP

Propane -- As you can see from the table below, all states in this week's survey except for one were unchanged. A three cent bump in Nebraska does not surprise us at this time of year. In fact, we expect next week's survey to show more of the same kinds of increases -- a few cents higher here and there with generally flat pricing. Supplies are still a weight on prices, and lower crude oil will also limit the upside in LP near-term.

  • According to EIA, last week, national propane inventories fell 1.393 million barrels -- now 20.691 million barrels above the same time last year at 96.341 million barrels.
  • The regionwide low is at $0.89 per gallon in South Dakota and the regionwide high is in Indiana at $1.26.
LP 1/12/16
Three Weeks Ago
Previous Week
Change
Current Week
$1.19$
Iowa
$0.95
$0.90
Unchanged
$0.90
Iowa
Illinois
$0.94
$0.94
Unchanged
$0.94
Illinois
Indiana
$1.26
$1.26
Unchanged
$1.26
Indiana
Wisconsin
$1.18
$1.18
Unchanged
$1.18
Wisconsin
Minnesota
$1.16
$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
$0.89
3 cents
$0.92
Nebraska
Missouri
$1.16
$1.16
Unchanged
$1.16
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
$1.04
$1.01
1 cent
$1.02
Midwest Average

 

Spread