Canada Markets

The Calgary Herald ran a column today suggesting that while lower diesel prices are expected as a result of the slide in crude, the benefits are slow to arrive at the farm level.

As indicated on the attached chart of retail diesel prices in Saskatoon as reported by Natural Resources Canada, diesel prices in that city have fallen from a high of $1.426/litre in May to the most recent weekly price reported of $1.131 per litre, a drop of 20.7%. Most of this drop took place since the beginning of December, a source of frustration for producers. At the same time, crude oil has fallen 55% from its June weekly high on the continuous chart of $107.73/barrel to the most recent trade of $48.47/barrel.

DTN's Diesel Market Strategies are based on futures trade in Ultra Low Sulpher Diesel traded at New York Harbor. While both short-term and long-term trends are viewed as bearish, there are reasons to watch this market. First is the seasonal trend, which tends to post a move higher of roughly 7% from the third week in January to the last week of April, as indicated on DTN's Five-Year Seasonal Chart.

While non-commercial traders or investors are currently holding a net-short position in this market, they have reduced this net short position or in other words, are becoming less bearish. Market volatility is high relative to the five-year average based on last week's close at 32.8%, a situation which leads to declining non-commercial or investor participation due to the increased risks involved. Commercial traders, on the other hand, or those with a vested interest in the physical commodity itself, are bullish as seen by inverted spreads in the nearby contracts (the nearby contract trading higher than the contract following it).

Today's trade in the March future resulted in a bullish outside day on the daily chart, with the future making a fresh low while the daily range was both higher and lower than yesterday's range with the close near the upper end of the range. Time will tell, but this could suggest a change in direction. Momentum indicators on both the daily and weekly charts are deeply over-sold which can also lead to a sudden change in market direction.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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