Sioux Falls Diesel Gains on Stable Heating Oil Futures
HOUSTON (DTN) -- At $2.134 gallon, diesel fuel on offer in the Sioux Falls,
South Dakota, wholesale terminal market was up 11.7cts from a recent low at
$2.017 set on July 2. The current average is 13.4cts higher than the May 25
3-1/2 month low at $2.00 gallon. Local diesel prices are down about 35.6cts
from an 18-month high posted on May 3.
Prices in the Sioux Falls' wholesale diesel market are primarily driven by
the Group 3 spot market, with supply delivered off the Magellan Pipeline
system. Spot prices are indexed against New York Mercantile Exchange oil
futures contracts, with heating oil serving as the national benchmark price for
diesel fuel.
The price differential between the rack posting average, which is the sales
offer by fuel suppliers at the terminal, and regional Group 3 spot market,
started the day at a 6.6cts premium, up from the week-ago average of 2.6cts,
and close to the second quarter average of 7.2cts.
Heating oil futures have held value on either side of $2.00 gallon despite
frequent sell-offs triggered by bearish reports on the economy and an
oversupply of product. Heating oil gained 3.92cts on the week last week as
traders ignored bearish supply data from the Energy Information Administration,
although it did slump to a two-week low earlier today following another bearish
EIA report.
Most second quarter corporate earnings reports have been positive,
bolstering values. Also, the Commerce Department reported a rise in new home
sales for the month of June yesterday, following up from a record low r in May.
However, consumer confidence dropped, surprising investors and pressuring the
market.
A lack of market confidence in the economy has kept heating oil futures from
breaking above resistance at $2.08 gallon, which marks the 67 percent
retracement level of the previous minor downtrend from $2.1725 gallon through
last week's low of $1.8968. However, positive economic data could lead prices
to the upside.
"The hard part about this market is keeping up with it, because it still has
the ability to leave us in the dust very easily," said Peter Beutel, president
of New Canaan, Conn.-based risk management firm Cameron Hanover.
Supporting factors for diesel in the coming months include an extremely
active hurricane season predicted by the National Oceanic Atmospheric
Administration, and the corn harvest that will take place in the Midwest in
September and October.
If values broke above resistance, the next level would be found near $2.15
gallon. Key support is found at $1.8867, then near $1.7410.
Overall, there appears to be no urgency in procuring diesel supply, with
surplus inventory limiting the upside for prices. Additionally, slowing
economic growth would limit demand for diesel and pressure prices. However,
this scenario is known and largely priced into the market, barring a more
material downturn to economic growth. Moreover, heating oil's seasonal feature
does point to an uptrend from August through October, suggesting higher prices
during the harvest season. As such, those in need of supply should look to
procure product on futures market sell-offs, giving suppliers a day to adjust
wholesale prices lower.
T.L. Hamilton, 1.832.767.2622, tl.hamilton@dtn.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.
