Diesel prices expected to increase due to environmental regulations

Diesel prices in Canada and the United States have increased marginally ahead of winter, which is expected for this time of year. However, in the New Year, prices on the farm will likely be higher than normal as the ocean freight industry adopts new environmental standards.

While a farmer’s demand for diesel is highest during growing and harvest seasons, diesel prices typically increase in the winter because of the percentage of homes that are still heated with oil.

“There are some places in the northeast U.S. and Canada that still use heating fuel, which is essentially the same as diesel fuel,” said Patrick DeHaan, head of petroleum analysis with GasBuddy.

“So prices move up towards the end of the year.”

But as of Jan. 1, a new specification from the International Maritime Organization will boost diesel demand. The organization is requiring large ocean vessels to run on ultra-low sulfur diesel, which will reduce pollutants.

He said ocean vessels have the option of installing mechanisms that clean the sulfur out of currently used bunker fuel or begin fueling with the same diesel that Canadians use.

“At the turn of midnight, we’ll see a tremendous increase in demand for those diesel products,” he said.

Although Canadian refineries are working to meet increased demand, DeHaan said there looms “an open-ended question regarding if there’s enough supply to meet that demand.”

“That’s a point of contention for prices,” he said.

The spike in demand will affect not only subsequent consumer prices at the pump, but also commodity prices. However, it’s too soon to tell if increased freight costs will impact a commodity buyer or seller.

Bids could be lower if producers are expected to cover shipping costs.

“Increased freight costs make suppliers more local,” said Bruce Burnett of MarketsFarm.

That could become a factor when buyers consider international trade partners.

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