Diesel prices finally ease Winter weather and international events could determine your fuel bill for 2018 By Bryce Knorr, senior grain market analyst After rallying to their highest level in nearly three years, diesel prices finally began to pull back this week, at least on wholesale markets after staying strong longer than usual due to the drawn out harvest. But how far fuel falls now depends on myriad factors that won t be easy to predict as farmers wonder when to lock in prices for diesel they ll need in the spring. For one thing, inventories in the Midwest are still fairly tight, falling for the ninth straight week last week. Despite increased production, refineries in the region are running at only 88.4% of capacity as seasonal maintenance begins to wrap up. How fast stocks build depends on turnarounds ending into the winter heating season. Heating oil is still used on the East Coast and the La Nina pattern expected this winter could chill temperatures in a few parts of the Northeast though official winter forecasts out today call for above normal temperatures in the East and South. Cold weather forecast for the Midwest and northern Plains could also be a factor in the broader petroleum market if it builds fears of another polar vortex like the one in 2014. Crude oil prices could also swing the product market. U.S. futures are holding above $55 a barrel, which is right on the average price for 2018 forecast by models of supply and demand. But current options volatilities imply crude could trade in a range from $41 to $71.75 in the coming year perhaps hitting both ends of that spectrum. Bulls hope OPEC and its allies will agree to extend production cuts through 2018 as the cartel 2.0 tries to move prices back to $70. Bears point to U.S. production that set a record last week. Rig counts are rising but are running at levels less than half their peak from the first part of the shale oil boom. The International Energy Agency this week said growth in U.S. production will set a record in coming years, even as it cut its forecast of global demand for 2017 and 2018. Seasonally, diesel prices tend to weaken into December and January. Basis between Midwest cash prices and futures delivered in New York Harbor tends to bottom in January and February. That could provide opportunities for growers buying a lot of fuel to trade the basis in an attempt to manage fuel bills. This involves either buying the board first, then liquidating those positions and buying cash, or buying cash and selling futures. Gulf diesel prices could average $1.81 to $1.83 in the coming year tack on 35 to 50 cents to those depending on your market. For a typical Midwest grower that means diesel could cost as much as $2.50, say during planting, or as little as $1.95. Whether bargains that deep would be available this winter is doubtful unless crude breaks to the bottom of its expected range. Fears of a new glut, collapse of the OPEC coalition, a meltdown on Wall Street, or a very warm winter could contribute to such a decline. Crude prices also will figure into the cost of propane for drying 2018 crops. Propane s seasonal rally into the heating season is lasting a little longer than normal due to the disruptions from a busy hurricane season, keeping the Midwest benchmark at the highest levels since 2014. Prices are unlikely to reach levels from earlier this year, but should work lower from late winter into early summer. Finally, crude could be key for ethanol s fortunes. Production remains near record levels, suggesting USDA is 50 million bushels or more too low on its forecast for 2017 crop corn usage. But ethanol prices pulled back this week on a build in stocks on the dip in crude, which could test margins.
net position long/short 450000 400000 350000 300000 250000 200000 150000 100000 50000 Crude Oil Futures and Options Managed Money Crude Oil Futures 0 1/1/2014 7/1/2014 1/1/2015 7/1/2015 1/1/2016 7/1/2016 1/1/2017 7/1/2017 $120 $100 $80 $60 $40 $20 $0 Source: CFTC, NYME Crude Oil Commitment of Traders - Crude Oil 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2007 2009 2011 2013 2015 2017 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 - Crude Oil Open Interest
Stocks 25000 WEEKLY ETHANOL PRODUCTION AND STOCKS Production 1100 thousand barrels 24000 23000 22000 21000 20000 19000 18000 17000 9/1/14 12/1/14 3/1/15 6/1/15 9/1/15 12/1/15 3/1/16 6/1/16 9/1/16 12/1/16 3/1/17 6/1/17 9/1/17 1050 1000 950 900 850 800 thousand barrels/day Ending stocks Daily Production ETHANOL PRODUCTION GALLONS FROM EACH BUSHEL USED 2.95 2.90 2.85 2.80 2.75 2.70 2.65 Sep 14 Feb 15 Jul 15 Dec 15 May 16 Oct 16 Mar 17 Aug 17
Average Corn Belt Ethanol Plant Margins $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $0.50 $1.00 Average Corn Belt Ethanol Prices $2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00
U.S. Gasoline Stocks 270 Current 5-Year Min. 5-Year Max. 250 million barrels 230 210 190 170 150 Days of Gasoline Supplies 33 31 29 27 25 23 21 19 17 15 Current Year Prior Year
Refinery Capacity Utilization 100 Current Year Prior Year 95 per cent 90 85 80 75 Total Petroleum Product Exports 7000 6000 5000 thousand barrels per day 4000 3000 2000 1000
Midwest Diesel thousand barrels 40000 35000 30000 25000 20000 15000 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 thousand barrels/day Stocks Production Mid Continent Diesel Seasonal 330 2006 2013 2017 2018 2016 2017 280 cents/gal 230 180 130 80 7/5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 5/5 6/5
$0.20 $0.15 Mid Continent Diesel Seasonal Basis 2006 2013 2017 2018 2016 2017 $0.10 $0.05 cents/gal $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 7/5 8/5 9/5 10/5 11/5 12/5 1/5 2/5 3/5 4/5 5/5 6/5
330 280 Group 3 Diesel Seasonal 2008 2013 2017 2018 2016 2017 230 180 130 80 7/1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1 $0.15 $0.10 Group 3 Diesel Seasonal Basis 2008 2013 2017 2018 2016 2017 $0.05 $0.00 $0.05 $0.10 $0.15 $0.20 7/1 8/1 9/1 10/1 11/1 12/1 1/1 2/1 3/1 4/1 5/1 6/1
U.S. Diesel Stocks 180 Current 5-Year Min. 5-Year Max. 160 140 million barrels 120 100 80 60 40 Days of Distillate Supplies 55 Current Year Prior Year 50 45 40 35 30 25 20 15
Energy Futures Price Curve Crude oil Diesel $57.00 $1.95 $56.00 $1.90 $55.00 $54.00 $1.85 $53.00 $1.80 $52.00 $51.00 $1.75 $50.00 $1.70 Crude oil $49.00 Diesel $1.65 $48.00 $47.00 $1.60 20 NOV 2017 19 NOV 2018 20 NOV 2019 20 NOV 2020 Diesel Swaps Chicago Group 3 195 190 185 180 175 170
115 U.S. Propane Stocks Current 5-Year Min. 5-Year Max. 105 95 million barrels 85 75 65 55 45 35 25 Days of Propane Supplies 135 Current Year Prior Year 115 95 75 55 35 15
Total Propane Supplied (Demand) 2500 2000 thousand barrels per day 1500 1000 500 0 Spot propane prices vs Crude oil Mid-Continent Propane Crude Oil $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0
Ave rage 2017 Seasonal propane prices (Mont Belvieu, Texas) Average 2016 2017 110 100 90 80 70 60 50 40 30 20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave rage 2017 110 100 90 80 70 60 50 40 30 Seasonal propane prices (Conway, Kansas) Average 2016 2017 20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
CME Swaps Curve Mont Belvieu, TX wholesale price $1.10 $1.00 $0.90 per gallon $0.80 $0.70 $0.60 $0.50 17 Nov 18 Jan 18 Mar 18 May JLY 18 18 Sep 18 Nov 19 Jan 19 Mar 19 May JLY 19 19 Sep 19 Nov 20 Jan 20 Mar 20 May JLY 20 20 Sep 20 Nov 21 Jan 21 Mar 21 May JLY 21 21 Sep 21 Nov Source: CME Group $1.05 CME Swaps Curve Conway Kansas wholesale price $0.95 $0.85 per gallon $0.75 $0.65 $0.55 $0.45 Source: CME Group