As the spring planting season comes into view, farm operation inputs will take focus. One of the key pieces to this process is the need for fuel to operate machinery.
Over the last four months, front-month diesel prices have been stuck in a tighter range than what energy marketgoers have been accustomed to over the last several years.
In under five years, markets have been through a global pandemic, a boom in economic recovery, war in eastern Europe, persistent high inflation, countering high interest rates, and war in the Middle East all affecting the rise and fall of energy prices. These events led to futures hitting a record spot low of 58 cents per gallon in April 2020 and a high of $5.85 in April 2022 as energies were buried in its most intense period of volatility markets have ever seen.
The range during the period of over $5 per gallon translated to a 900% gain in market prices. It has taken much of the last year and a half for a lot of the air to come out of the diesel market’s activity as it sits today.
In the most recent four-month stretch some instability seems to have come out of futures markets as the range between the high of $2.97 and low of $2.48 is down to less than 50 cents per gallon, a difference of only 16%.
The prior four-month period would also be considered above average as the range of $1.13 per gallon was over 30% change.
With many of the same world events contributing to market movement in the last several months, supply and demand fundamentals seem to be grabbing more attention of late in steering market pricing.
Over the last two years, distillate inventories have struggled to build decent stockpiles as European countries increased their share of U.S. energy product usage as countries in the region shifted away from Russian supplies after its invasion of Ukraine.
Since four-week average exports peaked in mid-2022 at over 1.5 million barrels per day, shipments out of the U.S. have been trending lower, sliding to a two-year low of 1 million barrels per day last week. With domestic demand staying steady over the same time frame and exports easing, distillate stocks responded by moving higher towards the end of 2023.
Just as distillate inventories started to see upward momentum, stocks reversed course and declined by nearly 15% over the last month and a half as pressure started to mount on inventories again. This time around it’s not due to elevated exports, it’s related to refinery utilization numbers dropping, decreasing the amount of distillate barrels available in the market, which so far has done little to push prices higher.
Refinery operations are expected to start coming back online in the next few weeks, allowing more refined products to be supplied.
If exports remain low and utilization numbers climb, it’s likely distillate inventories will start climbing again, putting pressure on prices as the dirt starts to turn.
Brian Keith is GROWMARK’s senior adviser for energy.
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