Higher Diesel Prices on the Horizon

Higher diesel prices appear to be on the horizon for Canada and the U.S. in 2019, with farmers facing the likelihood of another tick up in input costs.

GasBuddy.com Senior Petroleum Analyst Dan McTeague pointed to variety of different factors that are expected to push diesel prices higher, including increasing demand, a slowdown in oil production, the federal carbon tax and a plan by the International Maritime Organization to reduce the maximum amount of sulfur content in marine fuels used on the open seas from 3.5% to 0.5% by 2020.

“It’s the perfect trifecta of bad news,” McTeague said. “While (people) may be upset with the gas price increase. . . they will be even more upset with the increase on diesel, which affects the price of everything.”

The reduction in sulfur content in marine fuels is expected to result in more ships being forced to use diesel, as oil refiners scramble to produce enough low-sulfur fuel in time to meet the deadline.

Meanwhile, the federal government’s carbon tax – which officially took effect in those provinces that don’t have their own program on April 1 – puts an additional levy on diesel prices.

Further, McTeague suggested people also keep a watchful eye on the value of the Canadian dollar versus the greenback. Some forecasts have suggested the loonie could plummet to as low as 62 cents US this year.

“If that’s the case, look for another 13-cent increase,” McTeague said of diesel prices.

According to Phil Flynn of the PRICE Futures Group in Chicago, diesel prices in the U.S. are at their highest average so far in 2019 at US$3.08/gallon, as per the U.S. Energy Information Administration. Flynn suggested an increase to $3.20 is possible.

“With farmers about to start planting, that will increase demand,” he said.

A big part of the problem of rising prices, Flynn said has been oil production cuts by the Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia.

Added to that has been the U.S. embargo on imports of Venezuela’s heavy crude that used to feed refineries on the Gulf Coast. Additionally, there is the inability to ship a sufficient amount of heavy crude from Canada, as the Keystone XL pipeline remains incomplete, he said.

Canadian farm operating expenses (after rebates) were up 3% to $47.4 billion in 2017, following a 0.8% rise in 2016. It marked the seventh consecutive year of increases, and it is expected that input costs were up again in 2018 and will be up further in 2019.

Source: DePutter Publishing Ltd.

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