Farmers who are wondering when to make their next big fuel purchase will likely see a break in the price of bulk diesel in the near future.
Jason Parent, vice-president with MJ Ervin & Associates, says diesel prices are usually highest in November, December and January and usually start to fall in February, March and April as the period of peak demand for diesel fuel and heating oil passes.
“When you talk about diesel relative to gasoline, you’re going to see that gap between the two products start to narrow pretty soon and even more so when you get into February and March,” Parent said.
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The price of unleaded gasoline has dropped significantly in Western Canada over the past few weeks, but the price of diesel has remained relatively stable.
In Saskatoon, unleaded gasoline was selling for less than 80 a litre this week in Saskatoon, while the price at some stations in Calgary was approaching 70 cents a litre.
By comparison, retail diesel prices have been holding in a range of $1.05 to $1.20 per litre, depending on the location.
Prices for diesel and gasoline are closely linked to the price of crude oil, but Parent said the supply and demand fundamentals for the two refined products are different.
In North America, peak demand for gasoline occurs in spring and summer, while peak demand for diesel and heating oil occurs in winter.
That seasonality of demand partly explains why prices for the two products have not declined proportionately during the past few weeks.
Parent acknowledged that the price differential between gas and diesel has been unusually high this winter.
The difference between gas and diesel at some retail outlets has exceeded 30 to 35 cents a litre.
However, the gap between the two should begin to narrow in the next few weeks.
“The price differential between gasoline and diesel this year isn’t unprecedented and it isn’t out of the ordinary, but it is slightly more exaggerated this year and there’s a couple of factors why,” Parent said.
“One is the big drop in price of gasoline and crude oil and the other is the fact that diesel inventories across North America are relatively tight in comparison to most years.”
Many analysts predict crude oil prices of $50 to $60 for much of this year, which had led diesel users to wonder how low fuel costs might go in 2015. Parent said too many factors are involved to offer a definitive prediction on prices.
“That being said, if crude prices stay in the range they are in now, it is safe to say that diesel prices will likely sit well below where they were last year throughout 2015,” he said.
Tom Kloza, global head of energy analysis for the Oil Price Information Service, said in an email that the trend for crude oil and all petroleum products remains lower throughout 2015.
“Crude oil prices are under intense global pressure that has yet to abate, and most crude oil blends have lost more than 50 percent of their value since last June,” Kloza said.
“It’s a safe bet to predict that diesel numbers will come down appreciably this month.”
In a recent analysis, Kloza said Canadian heavy sour crude from the Alberta oilsands is selling for slightly more than US$30 per barrel, down from the $90s last summer.
Most of the North American production, including shale and oilsands projects, will continue to expand for a while, although at a slower rate than what might have been expected with $60 to $90 crude.
brian.cross@producer.com
