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Consider buying spring and summer farm energy needs to take advantage of lower prices.

Naomi Blohm, senior market adviser

February 6, 2020

4 Min Read

Energy prices had a short term peak just weeks ago after the flare up with Iran. Once the marketplace found relief in news that we were not at an immediate threat of war, crude oil futures, rbob gasoline futures, AND heating oil futures posted a bearish key reversal on daily charts, which was a technical topping action. 

A quick price sell-off then occurred, with crude oil futures losing over $15 a barrel in the following weeks.

The outbreak of Corona virus exaggerated the sell off as short term demand for energy products in China dropped substantially due to quarantine mandates. Bloomberg reported that Chinese oil demand had dropped by around 3 million barrels a day, or by 20% of its normal consumption due to the outbreak.

1. An overview of supply and demand.

If you haven’t been made aware of the overall fundamentals of crude oil, all you need to know is that we are WELL supplied. According the to the U.S. Energy Information Administration’s January 14, 2020 report, “annual average U.S. crude oil production reached a new record of 12.2 million barrels per day in 2019, up 1.3 million b/d from 2018. EIA forecasts U.S. crude oil production to average 13.3 million b/d in 2020 and 13.7 million b/d in 2021.”

Thankfully our export market has been red hot to match the huge production numbers.  In 2016 the United States exported just over 500,000 barrels of crude oil per week, with most recent numbers surging well over 3 million barrels per week!

Thinking globally, the fear right now is the short term demand loss in China due to Coronavirus. Demand for crude oil has slowed as transportation has slowed.  However, China will likely be anxious to do their best to continue to stay on top of Coronavirus and cease its spread as much as possible. Their economy has slowed because of the outbreak, and they will be anxious to get global production humming in order to get their economy back on track for continued growth.

Long term, Chinese demand for crude oil will pick up and likely continue to grow.

2. Seasonals.

If you look at the seasonal price pattern for crude oil futures there is a strong tendency for a price drop in early February, followed by a slow rally higher that lasts into early summer.  This makes sense as often times demand for energy needs grows as weather improves, spring break vacations occur, and school lets out for summer. Therefore, if you are in need of booking energy needs for your farm, now might be a great time to buy on sale.

3. Technical charts show strong support for crude at the $50 price level.

Looking back at the past two years, crude oil futures have strong support lines coming in at the $50 level.  Earlier this week prices dipped below $50 but have since come back above with gusto. We feel $50 will likely hold as support for now.

4. Take advantage of the opportunity!

This setback in prices for crude oil, rbob gasoline, and heating oil, is a tremendous opportunity for those who might need to book any energy needs for their farm. The U.S. economy is strong, and demand for energy is strong in the United States. Think of your cost of production for your commodities on your farm. If you can book your energy needs now, with this recent price drop, you might be drastically helping your bottom line.

 Reach Naomi Blohm: 800-334-9779 and [email protected]

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Naomi Blohm

senior market adviser, Total Farm Marketing by Stewart Peterson

Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.

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