Here recently there doesn't seem to be any indication of a downshift in the projected refined product cost in the near future. Many of the technical indicators are all showing gains and the USW strike sure isn't helping drive that down any time soon. Last week Baker Hughes Inc. said its US rig count went down by 33 last week to 986. A very strong decline from what many analysts would project even though that number was lower than what was anticipated generating concern for any significant impact on the market. Friday proved that to be different with US contract gaining 3.3% to 49.76 per barrel; over a 1.56 gain. The interesting part about the dwindling rig count and what we are seeing from a physical standpoint is that we are still riding a multiyear high on our output. The US is still producing 9.3mmbd of product showing the translation from rigs being cut should not by synonymous with a sharp rise in prices as we have seen the last couple weeks. With the market being as unstable as we are currently seeing it is generating a state of contango with suppliers storing product hoping to generate larger profits in the future. These types of tactics are what creates backwardation in the market by buyers making sellers pay a premium in the future for storing product they can use today. Another reason to consider for the increase in prices would be the recent weather they have been experiencing in Iraq. With this, the exports of OPEC were cut from their original goal of 30 million barrels in February to 29.92 million which is their lowest output of exporting since June of last year. If we can see an uptick from this side, then we might be able to see a little release in product costs putting the bulls at bay for a while, especially with weather in the Midwest acting as it has. The Midwest has been experiencing a longer than expected winter. I'm actually looking out my bay windows to my back deck and am staring at about 6 inches (and counting) falling right now. Noting that anomaly on March 1st I should also state I can barely see the tips of the corn stalks that were harvested last year, which is the going to be the largest interest point for March diesel (in my opinion). I say this because as of 2013 the Energy Information Administration has listed that diesel used in agricultural related business accounted for 3,026,611,000 per year of the overall 58+ billion gallon consumption. Assuming half of that product is used for planting, we are going to see a significant fall off from recent years of planting use on diesel. I know getting in the fields is all strictly dependent upon time of year based on geographical placement, however this cold snap hasn't just effected the Ohio valley where I'm at - I even saw where Jacksonville, FL received some snow as well. This arctic blast is potentially going to put many farmers back 2 - 3 weeks on their planting plans which could push March contract diesel lower and pop April contract higher. Looking at the weather in my neck of the woods, we're not supposed to see weather over 40 degrees without precipitation until March 10th; it's going to be tough for the ground to dry out as needed within 2 weeks for farmers to get in fields in March and start tilling and cultivating. I'm actually telling my larger volume customers to entertain locking in some April pricing over the next couple weeks (just watch the market) and on the heavy down day to pull the trigger. It will help them budget the per acre costs and limit risk. Some are even entertaining locking in for harvest which I can't say would be a bad idea either....
As far as regional pricing/supply goes, Husky is still installing an isocracker unit at its Lima refinery which is keeping it running below max utilization. The pricing on Platts/Argus continues to be stable and beneficial as of today with the netbacks still hitting close to .20/gallon in specific markets. With the recent 2nd round of winter weather in the last week, logistics are becoming a little challenging by the Miami Valley expecting between 5-7 inches of snow. After speaking with our dispatch group this morning is sounds as though the road crews for Ohio have been doing an exception job with our team continuing to go forward with no issues at all. Our trucks have been running well, while still basing safety as paramount, and our loads have not been impacted by the snow.
Although this does seem to be an exceptionally long winter it is bitter sweet coming from a guy who works for a company who sells heating oil and propane. As a fan of the show Goldrush I have to admit I was pretty excited about the recent tag given to our company in moments like this #coldisgold.
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