Diesel prices, now less than gas at the pump, likely to rise into the fall harvest

The price of diesel fuel is poised to jump this fall, just as Midwest farmers need more fuel for harvest, a CHS energy analyst says.

The warning from Tony Headrick, energy market analyst for CHS Hedging in Inver Grove Heights, comes as gasoline prices are falling after a large Indiana oil refinery recovers from an unexpected major outage that spiked gas prices as far away as Minnesota.

A big slate of planned refinery outages this fall could affect diesel fuel, which has been selling for less than gasoline, he said. Diesel could rise 15 cents to 30 cents per gallon as farmers start using large quantities for harvesting equipment, he said.

"There's a real possibility that diesel supply will get tight," Headrick told journalists at a CHS presentation Thursday in St. Paul.

Headrick said he and other CHS experts are recommending that farmers fill their storage tanks early. "This year more than past years, that's going to to be important," Headrick added.

Midwest diesel sold for an average $2.54 per gallon this week, according to the U.S. Energy Information Administration (EIA). GasBuddy.com reported diesel as low as $2.35 per gallon Friday in Minnesota.

By comparison, gasoline remained higher than diesel, but gas prices were dropping. Midwest average gas prices earlier in the week hit $2.79 per gallon, up 32 cents — the largest weekly increase since Hurricane Katrina jolted the fuel market in 2005, the EIA reported.

Refinery shutdowns blamed

The run-up in gasoline prices was attributed to the Aug. 8 unplanned outage of the Midwest's largest refinery, in Whiting, Ind., which saw a reported 40 percent drop in output, the agency said. The refinery reportedly was making a temporary repair to restore output.

More refinery outages are expected in September and October, including a major one at Flint Hills Resources' Pine Bend refinery in Rosemount, the largest of two refineries in Minnesota. Such maintenance outages are common in the fall, but this year they will be particularly heavy, Headrick said.

In September, he said, Midwest refineries will take offline 530,000 barrels per day of capacity, compared with 240,000 barrels per day taken offline in September 2014. That means nearly 300,000 fewer barrels per day will be processed by regional refineries compared with a year ago. Headrick said refinery outages will continue through October.

That reduction in production will happen when farmers' demand for diesel fuel is rising, he added. "So there is a lot of concern and a lot of potential for supply of diesel to be disrupted this fall," he added.

GasBuddy.com senior petroleum analyst Patrick DeHaan agreed that diesel prices are likely to rise this fall — even though there are high levels of diesel in storage.

"It is the calm before the storm for diesel," he said in a telephone interview Friday.

Neither DeHaan nor Headrick expect this autumn's refinery outages to trigger another spike in gas prices because the high demand from summer driving will be over.

David Shaffer • 612-673-7090 Twitter: @ShafferStrib