Farmers fail to see diesel decline despite drop in crude oil prices

Falling crude oil prices have pushed fuel costs at Canadian pumps to their lowest levels since 2011, but the cost of farm diesel is stable.

At around $1 per litre, farm diesel prices are down from recent weeks, but farmers saw even lower prices this fall at 90 cents, said Chris Adair of Rack Petroleum in Biggar, Sask.

Even though crude continues to fall, the cost of farm diesel has risen since harvest wrapped up, and Adair expects it to stay at current levels until springtime, the result of predictable seasonal trends and strong demand from the oil production sector.

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“Fifteen, 16, 17 years ago, western Canadian farmer seemed like they dictated what would happen,” he said.

“(Prices) would rise when the farmers went into the field and when they got out of the field it’d drop. It’s not doing that anymore.”

Retail gasoline prices have fallen in recent weeks, following a steep decline in crude oil prices, which accelerated last week after the Organization of Petroleum Exporting Countries voted to maintain current production despite a global oil surplus.

West Texas Intermediate crude plunged to less than $66 per barrel from about $78 at the start of Nov-ember.

Some analysts project the price to fall to $60, or less.

“If crude rises at all, I think you’re going to see diesel stay around that dollar (per litre),” said Adair.

“I hear reports of people seeing $50 per barrel oil. If you see that, I guess it’s probably going to go the other way a bit, but I still don’t think you’re going to see diesel below 90 cents.”

In Saskatoon, regular gasoline could be purchased for less than $1 per litre Nov. 28 and diesel from $1.23 to $1.36.

In July, regular gasoline and diesel prices neared parity, albeit at higher prices than today. The spread usually widens in the winter as demand for heating fuel increases.

The spread increased 25 to 30 cents in Western Canada during last year’s harsh winter.

Jason Parent of MJ Ervin and Associates, which surveys petroleum prices, said the current spread could be the result of low diesel stocks in the United States.

Parent said the spread can be expected to narrow in the spring. However, he expects lower retail prices to remain into the new year.

“I think (in) February you’re going to start to see fuel prices come back up regardless of what crude does and that’s just a normal seasonal trend with gasoline prices,” he said, predicting crude oil prices won’t dip much lower for long.

The decline in crude prices is the result of increased production from the U.S., which is contributing to a global oversupply.

Thanks to new production from shale formations, U.S. production has risen to 8.57 million barrels of crude per day, up 57 percent since 2010.

The U.S. Energy Information Administration forecasts U.S. production to increase 10 percent to 9.42 million barrels next year.

At the Orgainization of the Petroleum Exporting Countries meeting last week, Saudi Arabia convinced a majority to reject Venezuela’s request to reduce production to support crude prices.

The Saudis hope low prices will slow North American production increases and preserve the market share of Middle Eastern producers.

“What has happened very recently is Saudi Arabia has basically said … we’re going to protect our market share and we’re going to stop lowering our production,’ Parent said.

“So you’re left with this glut of product right now … .What’s in place right now is a little bit like a game of chicken between the U.S. producers and OPEC and Saudi Arabia.”

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