CNS Canada — The lingering effects of two large hurricanes in the U.S. continue to be felt in the diesel market as harvest winds down throughout North America.
In particular, Hurricane Harvey was a disruptive force on the U.S. energy market as it temporarily halted production at refineries.
Both gas and diesel prices rose in the days that followed and according to one industry-watcher, another increase could be coming.
“(Diesel) supplies are below the five-year average for the first time in many years,” said Phil Flynn of the Price Futures Group in Chicago. “It’s not just a U.S. issue, supplies are tight globally.”
Europe is importing near-record volumes of distillate oil from the U.S., which is putting more pressure on diesel, he said. Distillate fuel is used for heating as well as high-powered freight engines and industrial machinery.
“We’ve seen both gas and diesel prices go up,” noted Flynn. “All of a sudden we’re getting to the holidays and supplies are tight.”
Flynn feels some farmers have been underhedged because they were expecting low prices to continue.
“We feel that if we get a cold winter these prices could go up even more, so if you’re not hedged we would seriously think about locking in some of these prices,” said Flynn, adding low corn prices are not helping.
However, he said, the situation could change if there is a significant slowdown in the global economy. He points to weakening Chinese stocks as one example. The CSI 300 Index, which is comprised of 300 of the country’s largest companies, has slumped 4.1 per cent since Wednesday.
In addition, he said, an upcoming OPEC meeting could result in an agreement that disappoints the market and sends oil prices back down.
Members of the Organization of the Petroleum Exporting Countries are due to meet this week and discuss whether to extend cuts to global oil production. Already, there are worries that some countries will refuse to extend the agreement that curbed oil production.
“The reality of the situation is that we’re below average for this time of year regardless,” he said. “Demand is stronger than it has been for many years and the chance that this market will tighten all winter is a real possibility.”
— Dave Sims writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.