Commodity News Service Canada – An improving U.S. economy and a global deal to limit oil production should give diesel prices a boost in the coming year.
“We’ve been blessed with low diesel prices the past few years but we’re probably looking at higher prices in the New Year,” said Phil Flynn of Price Futures Group in Chicago.
The trend may have already started.
According to the Energy Information Administration (EIA) diesel hit US$2.53 per gallon this week, which was the highest point of 2016 and the fourth consecutive weekly increase.
“I mean we’re expecting a peak so we could be closer to US$2.75 a gallon next year,” he said.
The agreement reached by The Organization of the Petroleum Exporting Countries (OPEC) to limit oil production is another reason behind the rise.
The deal was completed in late November and since that time crude oil has risen from a mark of US$45.23 (Nov 29) to US$52.83 (Dec 23).
While the rise in diesel prices will heighten farmers input costs, Flynn says the jump in crude oil should provide a beneficial effect on commodities in general.
“I think that’s going to help commodities across the spectrum,” he said. “Hopefully we’ll see better markets.”
Prices for diesel have remained fairly steady across the Prairies recently, with Calgary and Edmonton reporting prices averaging around 77 to 98 cents per litre while Winnipeg was slightly lower at 95 cents.
The Canadian market will likely feel the same pressures as their neighbours to the south but there are a few factors that could mitigate that.
One is the direction of the Canadian dollar and how it stacks up against its U.S. counterpart.
Another is the current expansion of oil refineries across Western Canada and the correlating increase in supplies.
For example, Arizona-based Quantum Energy Inc. plans to open a 40,000 barrel-per-day refinery in Southeast Saskatchewan while Shell recently upgraded production at a facility in Edmonton.
“With the advent of new supplies coming on line. That will likely keep a damper on prices,” said Dan McTeague of Gasbuddy.com.
He says any drops in demand from the energy, mining or agriculture sectors could affect prices in Western Canada, but he doesn’t see any major downgrades happening soon.
“There’s nothing here suggesting a decline,” he said. “But what’s clear is that there appears to be an emerging pattern of greater production of diesel distillates throughout the Midwest and Canada.”