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Enjoy stable diesel market while you can, analyst says

CNS Canada — The short-term outlook for the diesel market in North America calls for current prices to remain largely untouched through spring planting — but it could change drastically after that.

According to Tom Kloza of the Oil Price Information Service in New Jersey, prices for diesel could even get higher than crude oil. “It could evoke memories of 2007, 2008 when diesel prices really got out of hand.”

The catalyst for change, he said, lies in looming changes to the shipping industry.

“There will be a lot more diesel used to fuel ships around the world,” he said. “Something on the order of four million barrels per day of additional diesel demand worldwide.”

Currently, large freighters and transports are allowed to use thick, sulfur-laden fuel on voyages. However, they will soon have to change to cleaner-burning fuel in a bid to become more environment-friendly.

“A single container vessel (currently) emits more sulfur in its lifetime than 10 to 15 million diesel cars,” said Kloza.

The switch will be a big one, Kloza said, as the ships move from fuel that contains 35,000 parts per million (sulfur) to something much lower, perhaps as light as 5,000 ppm.

That means diesel will likely be in booming demand by the latter part of 2019, he said.

“So enjoy it while you can,” he said, adding diesel could be in shorter supply by at little as nine months from now.

However, he did note some factors that could help mitigate the cost of diesel. For one, some countries such as Iran don’t want the cost of oil to rise too much, for fear U.S. shale oil drillers will move in and take their market share.

As well, more oil production is coming on line throughout the world.

“There’s no question we’ll see more crude oil coming from the U.S., just vast amounts,” he said, adding Canada probably has another 300,000 to 400,000 barrels of crude oil also set to begin flowing by next year.

As of Tuesday morning, prices for diesel on the Prairies ranged from around 99 cents to $1.05 per litre.

If Kloza is correct, those prices will be a fleeting memory by this time next year.

“For spring planting this year I think the price of diesel will be pretty moderate because crude oil prices will be moderate,” he said. “But boy, a year from now it really changes and it will change dramatically.”

— Dave Sims writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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Comments

  • Monkeeworks

    “There will be a lot more diesel used to fuel ships around the world,” he said. “Something on the order of four million barrels per day of additional diesel demand worldwide.”

    This is one ‘analysts’ opinion. Here is mine so you now have a choice of two.
    Don’t worry to much about the fuel change any time soon. The engines in these ships are monumental in size. I am talking 3 stories high, 14 cylinders and 115,000 BHP, fuel injectors so big it takes two men to lift one. These engines will NOT burn on regular diesel for long term. They switch to diesel from heavy bunker for slow speed manoeuvring in city ports. IF they are forced to change to diesel for continual running they are looking at engine replacements in the hundred of millions of dollars per vessel. If the engine can even be removed. Diesel will be about 2 times more expensive to purchase. Guess who pays that bill on deep sea vessels coming into American ports to deliver Chinese Walmart goods?