Rising diesel could surge with U.S. infrastructure plan

CNS Canada — Diesel costs in Western Canada are roughly eight to 10 cents higher on average than anytime in 2017, and an industry expert warns that gap could grow even more with a potential surge of U.S. construction.

“I think we’re already seeing more evidence of a robust, consumption-driven U.S. as more disposable income is being sprinkled around,” said Dan McTeague of Gasbuddy.com.

U.S. tax breaks and growing factory orders indicate more construction is likely on the way, he said.

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In his State of the Union address Tuesday, U.S. President Donald Trump spoke at length about his desire to push through a US$1.5 trillion plan to rebuild much of the country’s infrastructure and put people to work.

If that plan is voted through by Congress it undoubtedly would result in more diesel being used in the coming years.

“In that scenario I think we will continue to see upward pressure on diesel prices,” and an additional rise of 10 cents a litre could be felt, said McTeague.

A rise is expected despite Canada increasing its diesel supply last fall with the opening of the North West Redwater refining facility at Sturgeon Lake, Alta.

The $9.3 billion refinery is designed to upgrade 50,000 barrels of bitumen per day into 40,250 barrels of ultra-low sulphur diesel.

There are additional factors supporting the diesel market, McTeague said, noting this winter’s colder temperatures, strength in the mining sector as well as growing economies in Europe and Asia.

Meanwhile, disruptions caused to the energy supply by last summer’s hurricanes in the southern U.S. are over.

However, “strong economies beget a strong price for diesel,” he said.

Going forward, he expects the bulk of the rise in diesel to be felt over the first half of 2018 before the market cools down.

“The last half of 2018 will be moderate but higher than last year,” he said.

The export picture in both Canada and the U.S. remains strong. “Diesel will find its mojo going forward,” he said.

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

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