Diesel Fuel in Indianapolis Wholesale Market nears $2.10
HOUSTON (DTN) -- Diesel fuel was on offer at wholesale terminals in
Indianapolis, Indiana, at an average posted price of $2.091 gallon this
morning, an increase of 9.2cts from a five-week low of $1.9989 gallon posted on
July 2. Values are 11.2cts above a 3-1/2 month low at $1.979 gallon set on May
25, but down 35.4cts from the 2010 high reached in early May at $2.446 gallon.
Wholesale terminal prices, also called rack postings, are primarily driven
by the Chicago spot market. Spot prices are benchmarked against New York
Mercantile Exchange heating oil futures.
The price differential between the terminal and the regional spot market is
at a 3.2cts rack premium. In the second quarter, rack postings averaged a 5cts
premium.
Range-bound heating oil futures have offset the lower terminal-to-spot
market price differential. While trade for the NYMEX oil complex has been
choppy in recent weeks, heating oil futures have remained on either side of
$2.00 gallon despite frequent sell-offs on mixed economic data amid weakening
market confidence in the nation's recovery from recession. While positive
second quarter corporate earnings reports have bolstered values, a surprising
drop in consumer confidence dealt a harsh blow to the complex.
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.
Futures are expected to garner support from an extremely active hurricane
season this year, with three or more major storms predicted by the National
Oceanic Atmospheric Administration. Also, the corn harvest season in the
Midwest will cause an uptick in regional diesel use, bolstering local prices as
well as heating oil futures.
So far, heating oil futures have remained below 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. If values broke above
that level, the next level of resistance 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.
