Minneapolis Diesel Prices Up 6.7cts on Wk to 1-Month High
HOUSTON (DTN) -- In Minneapolis, Minn., sales offers for diesel fuel in the
local wholesale terminal market averaged $2.213 gallon this morning, a
one-month high, gaining 6.7cts from the Aug. 31 average, while up 12.3cts from
the Aug. 24 1-1/2 month low. Today's value is down 10.6cts from Aug. 6 when the
supplier average reached a three-month high of $2.319 gallon.
Local wholesale diesel prices or rack postings are primarily driven by the
Group 3 spot market, which trades in differentials to the futures market. Spot
diesel prices are indexed against the New York Mercantile Exchange heating oil
futures contract.
The price differential between the regional spot market and local rack
posting averaged an 8.4cts rack premium today. This compares to a second
quarter average of 8.2cts.
Heating oil futures trade has responded largely to equities, currencies and
economic data over the past several months as the influence of speculative
traders looking for profitable investments wins out over the affects of
fundamental traders who are looking to hedge costs.
The economic factors are largely more unpredictable than seasonal and
fundamental factors, meaning that heating oil futures price movement has been
more volatile and difficult to foresee. On Friday, analysts expected futures
values to head higher following an anticipated jobs market report from the U.S.
Department of Labor, when said report showed an increase in the total number of
jobs in the nation. However, the market reacted instead to an Institute of
Supply Management report showing a decline in the number of service sector
jobs.
"This new twist -- of the market reacting to cherry-picked economic
information, according to its whim, makes the situation that much more
unpredictable," said Peter Beutel, president of risk management firm Cameron
Hanover. "It is difficult enough trying to predict which days might respond to
overwhelmingly bearish fundamentals -- based on the direction of equities and
currencies -- but then to throw in an added element of unpredictability based
on almost random economic data makes it next to impossible."
However, heating oil futures are expected to gain amid the typical increase
in demand from August through October ahead of the winter heating season. What
is predicted to be an active hurricane season this year will also continue
through the beginning of November, and may cause unexpected supply tightness,
or at the least, concerns of potential supply tightness.
Despite the uncertainty, the price performance by heating oil futures for
the past several months suggests would be buyers should acquire diesel fuel
when the nearby delivery contract, currently October, breaks below $2.00
gallon. Those in need of supply should consider acquiring product with a crack
above $2.10 gallon, which would suggest higher gains.
T.L. Hamilton, 1.832.767.2622, tl.hamilton@telventdtn.com,
www.telventdtn.com. (c) 2010 Telvent DTN. All rights reserved.
DISCLAIMER: The market analysis offered above is not a recommendation to buy
or sell, nor is the author certified to make such recommendations.
