BIG By Tony Headrick Read seasonal market signals to help lock in the best prices. n the field and on the road, diesel powers commerce and economic growth worldwide. Construction sites and railroads depend on diesel, tankers use it on the seas, and it heats homes and powers businesses. Globally, diesel demand has been growing, particularly in emerging economies with dense populations. Diesel is used more widely than gasoline around the world and growth in diesel demand is projected to outpace gasoline. In the U.S., crude oil production is on the upswing. In 2013, for example, the U.S. produced a 24-year high of 7.5 million barrels per day (BPD). And, for the fi rst time since 1994, the U.S. produced more crude oil than it imported. With vast oil resources in areas such as the Bakken (N.D.), Eagle Ford (Texas) and Permian (Texas) basins, U.S. crude production is expected to average 8.4 million BPD in 2014, rising to 9.2 million BPD in 2015. As crude oil production has increased in the U.S., imports from more volatile and unstable regions around the world have declined. Over the last three years, U.S. refi neries have sourced more crude oil from North America and South America, which has helped stabilize supply and price for what those refi neries produce: diesel and gasoline. demand for diesel Summer By late April, most spring refi nery maintenance is done and utilization rates increase. Inventory begins to rebuild and demand is stable. By July 4, diesel prices usually soften as refi neries reach peak production levels. This has historically been an ideal time to fi ll storage or lock in a forward contract price for fall diesel needs. I Fall From early September through mid-November, refi neries begin maintenance on units that have run hard all summer. This comes at a time when demand is peaking, particularly for harvest across the Grain Belt. Diesel supplies diminish, regional supply constraints become particularly acute and price spikes are common. Winter From late November to early January, refi neries have fi nished fall maintenance schedules. Refi nery utilization rates increase and supplies of diesel fuel rise at a time when demand softens. Historically, this has been an ideal time to lock in prices for spring needs. Consider forward contracting for fall needs at this time, too. Seasonal Factors Aff ect Prices By understanding the current global environment and seasonal infl uences to the U.S. supply and demand balance, producers and businesses can be better positioned to purchase diesel at the right time and at the right price. By following seasonal nuances of refi nery maintenance and its infl uence on the supply and demand balance, U.S. diesel buyers can identify buying opportunities that put them on the road to long-term success. Spring After running hard all winter, refi nery maintenance begins from mid-January to mid-April, starting in the southern U.S. and working north. At the same time, diesel demand is picking up. Drawdowns in distillate inventories occur, so supply is constrained and prices typically rise. Q LEARN MORE Tony Headrick is an energy market analyst at CHS Hedging (chshedging.com). Follow him on twitter @hedgeit_ahead. 16 MAY/JUNE 2014 CHSINC.COM
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Big Demand For Diesel
Tony Headrick
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