As supply tightens, farmers should consider stocking up on diesel before it’s too late, according to an analyst.
“We think the market’s getting kind of overdone down here and this might be your best chance,” said Phil Flynn of the Price Futures Group in Chicago.
“If we do get a cold winter, I think we’ll see these prices really pop.”
Crude oil prices have been down lately. Brent crude closed at US$72.16 per barrel Nov. 5 and West Texas Intermediate crude at $62.52. Both oil benchmarks have slid more than 15 percent since hitting four-year highs in early October.
However, even with oil prices on the downswing, Flynn said there should be concern about diesel prices. Supply has been tightening globally, which could lead to a price spike.
“As of last week I think (the U.S. oil stocks were) five percent below the five-year average, and there’s a lot of concern that if we get a really cold winter, it’s going to be difficult to meet that demand and get caught up,” he said during the first week of November.
China is also facing a tightening supply, according to Flynn. The latest news out of the country has the Chinese government telling the western provinces to increase purchases of diesel and heating fuel for the winter. China has faced supply shortages in the past and the government is trying to lower the chances of that happening again.
There have also been reports out of Russia that they are thinking of putting export duties on oil because they’re concerned about their distillate fuel supplies heading into the winter.
Flynn said this all leads to there being an overall bullish backdrop for diesel prices.
While gas prices have been lower than diesel prices lately on the Prairies, consumers shouldn’t be expecting diesel prices to come down, Flynn said.
“If you look at the supplies of gasoline, they’re really above average for this time of year,” he said.
“Even though demand has been relatively strong, diesel fuel is below average and that’s why you’re seeing that discrepancy.”
While the U.S. sanctions against Iran have been making news headlines in regards to oil prices, Flynn doesn’t think this has been affecting diesel markets much because of the 180-day exemptions the U.S. has placed on eight importers who work with Iran.
“Right now the market seems to be dismissing those because of the waiver and I think one of the reasons they had to give waivers is because of the tightness of distillate,” Flynn said.