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Weekly Energy Review

Energy more expensive, whatever the fuel

Published on: Apr 9, 2014

Opportunities to buy diesel fuel didn't last long over the winter, and the arrival of spring means costs are going up.

In addition to seasonal demand from agricultural uses, international tensions and an improving U.S. economy are also combining to drive prices higher this spring. The Ukraine crisis appeared to ratchet up this week after a brief lull, complicating traders anxieties because Russia is the world's largest exporter of crude oil. Output from Libya has also been constrained by troubles there in the wake of the two-year old Arab Spring.

Closure of the Houston Shipping Channel in March also led to disruptions. It's back in business now after a spill, but the effects appear to be lingering. Crude oil stocks as swelling, rising another 4 million barrels last week, with input unable to reach refineries. Gasoline inventories are headed in the other direction, falling 5.2 million barrels, well above trade expectations, falling some 25 million barrels over the winter as demand ahead of the summer driving season begins to kick in. While cars are much more fuel efficient, motorists are expected to hit the road more often this summer due to an improving economy.

All that comes on a backdrop of a diesel market hurt by the frigid winter, which raised prices in the futures market as well. Now seasonal demand from farmers heading to the field is decreasing diesel inventories nationwide, though much of the drawdown appeared focused on the Midwest. Though production was up 48,000 barrels a day, Midwest stocks were drained by another 656,000 barrels, taking them to their lowest early April level since 2010.

Prices are rising as a result at the wholesale level, with both benchmarks we follow above $3 a gallon. That's the trigger we recommended for finishing purchasing spring needs, after recommended sales at lower prices earlier in the winter.

Crude oil actually looks fairly valued at current prices, given seasonal factors and fundamentals of supply and demand. Futures held their uptrend for 2014, and could be headed for a test of highs around $105, with a move above $107 not out of the question if international tensions don't ease.

Propane prices also moved higher, following the overall move in the petroleum complex. Demand is waning seasonally, which should allow for better buying opportunities this summer.

Download the complete report using the link below.

Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Adviser. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.


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