Technically Speaking

Weekly Analysis: Ag-Related Energy Contracts

Todd Hultman
By  Todd Hultman , DTN Grains Analyst
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Thanks to a cold 2017-18 winter, production problems in places like Venezuela and Libya, and production cuts from OPEC and Russia, diesel prices have been on the rise for over a year. (DTN ProphetX chart)

EIA Flat Tax On-Highway Diesel: The September diesel contract jumped over a nickel higher last week to $3.2057 a gallon and is now up 56 cents from a year ago. Several factors have contributed to the rise, but primarily, world demand for oil and fuel has been active after a cold winter in early 2018. Production has also been limited by OPEC and Russia until recently and by problems in places like Venezuela and Libya. The U.S. Energy Department said distillate inventories totaled 117.7 million barrels at the end of June, the lowest since 2004. Even though diesel prices have trended higher for over a year, the obvious danger is the possibility of price spikes with low inventories going into a new winter.

Spot Propane, U.S. Rack Average: This propane price was up 5.8 cents last week to 88.99 cents a gallon and is up 13.3 cents from a year ago. U.S. propane inventories are not as short as the distillate situation described above, but they are at the lower end of their five-year range and down 2% from a year ago after two consecutive years of longer-than-usual winter drawdown seasons. Propane has been trading in a sideways range since March, but broke above the June high last week. Prices have a tendency to trend higher in the fall with increased concerns about low supplies ahead of winter. Friday's close represents the start of a new uptrend.

Spot Ethanol: Spot ethanol prices were up less than a cent last week to $1.44 a gallon and are down roughly 8 cents from a year ago. In spite of this year's controversy over EPA refinery waivers and the administration's commitment to the mandates of the Renewable Fuel Standard, ethanol prices have been a bedrock of stability and the pace of production has remained consistently high, last seen at 1.074 million barrels per day. With ethanol supplies still facing another four months of seasonal drawdown, prices should remain well supported above the June low of $1.36 -- one of the more reliable sources of support for corn prices.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

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