Fuel price outlook: Red diesel steady but volatility remains
© GNP Fuel prices are at a level that may tempt many to fill the tank, having reached a 22-month low in mid-May and putting on just a couple of pence since then.
However, offers to fix prices forward are hard to find, with suppliers unwilling to take the risk after their rollercoaster experience of last year following the start of the Russia-Ukraine conflict.
Prices have followed crude oil on a falling trend for the past month, which at the start of this week was US$73 (£58) a barrel (Brent crude) compared with $121 (£96) a year earlier.
See also: Steep price rises put focus on machinery costs
This put diesel at 64-66p/litre at the start of the week, with Farmers Weekly’s midweek price survey averaging 67.1p/litre for a 5,000-litre drop for delivery early next week.
Lead times are anything up to five days, with some suppliers asking for payment on or before delivery, while 28-day payment is available through some buying groups and other arrangements.
With that background, suppliers are hoping farmers will order harvest supplies soon so that a rush and a price squeeze is avoided as far as possible at the start of harvest.
Outlook
Higher interest rates are pressuring economic growth forecasts, potentially leading to lower diesel demand, which may pull prices back, say commentators.
Opinions vary on demand and particularly on Chinese growth forecasts, while a US interest rate decision was expected soon.
However, all warn of the volatility risk, with political uncertainty adding a further element.
“With diesel prices back to early-2021 levels and currently at about the 64p/litre mark, that starts to make the likes of premium fuels such as Shell’s gas to liquid [GTL] look more attractive and we’re seeing a slight uptick in requests for a higher grade of fuel,” says Neil Cooper, MarketPlace manager at online farm input pricing platform Yagro.
“However, the most notable difference we’ve seen has been in farms increasing their fuel capacity, partly down to the issues around delivery in 2021’s fuel crisis and the volatility in prices over the past few years.”
At Hull-based Rix Petroleum, managing director Duncan Lambert says the futures markets have never recovered from the volatility of last year, with some traders packing in and others far more risk averse than in the past.
“As soon as we get into July, farmers need to start filling their tanks, before the refineries put the squeeze on,” says Duncan.
Watching the markets over the next few weeks might pay off if refineries needed to move product quickly, he adds.
At Oxfordshire-based buying group Orion, fixed forward pricing has not been discussed this year as there is little appetite from members, says fuels manager Phil Shirley.
Red diesel prices from suppliers were generally within a 2p/litre range earlier this week.
This can at times vary by as much as 4p/litre, seemingly dependent on what each individual supplier’s stock holding is.
Duncan urges farmers to check their tanks for safety and efficiency.
Following little use of driers last year, many will not have been seen by suppliers for a couple of years, he says.
“Probably 15% of farm tanks need improvements to their safety and support,” he suggests.
Tank advice
Driver health and safety
Working at height is a key risk for fuel tanker drivers and suppliers are increasingly concerned about this.
Some will refuse to supply poorly supported or otherwise dangerous installations.
A 2m-plus hose is heavy to lift off the floor and three points of contact are needed for safety.
Even if there is an offset fill pipe, the tank often has to be dipped to check what it will hold.
Compliance
The Silage, Slurry and Agricultural Fuel Oil regulations apply where a new agricultural fuel oil store is proposed or where substantial changes are made to an existing store, and where more than 1,500 litres of agricultural fuel oil is stored.
Wherever fuel oil is stored the occupier is responsible for taking precautions to prevent and contain spillages – for example, by fitting an alarm to alert to overfilling.
Installations built before March 1991, or where a contract for construction was entered into before March 1991 and completed before September 1991, are exempt from the rules for new stores.
However, if substantial changes are made, such as structural changes, increasing capacity or relocating a store, it is no longer exempt.
The Environment Agency can serve a notice at any time requiring storage be brought up to the current standards if it believes there is a significant risk of pollution.
Tank filters
At about £100, a tank filter is cheaper than many tractor filters and if blocked will likely cause less downtime.
Insurance
Correct tank safety provisions can help reduce incidents, the resulting insurance claims and the subsequent impact on premiums.
Bowsers
Any bowser or tank carrying more than 990 litres must be driven by an ADR (transport of dangerous goods) qualified driver, requiring training.
An incident on the road with an unqualified driver of such a load raises the risk to that driver, to drains, watercourses, other road users, the general public and property, with attendant insurance implications too.
HVO fuel – lower emissions from vegetable source
HVO is hydrotreated vegetable oil, a paraffinic fuel and a fossil-free alternative to mineral diesel.
This is what is known as a second-generation biofuel, and can also be made from animal fats.
It is odourless, has good cold weather performance and a long-shelf life is claimed.
HVO has lower greenhouse gas emissions than traditional diesel and a cleaner burn, with lower NOx and particulate matter.
It can help reduce an operation’s carbon footprint and, like gas to liquid fuel, is a known as a “drop-in” replacement for traditional diesel, with no engine or tank modification needed.
It can be blended with traditional diesel but comes at a premium of 20-30p/litre.
HVO was donated by supplier Certas to fuel the recent John o’Groats to Land’s End combine charity drive.
This saw four farmers drive a Claas Lexion 8700 on an 875-mile route to raise awareness and funds for mental health charity Mind, and for a second charity, Children with Cancer UK.
Increasing uptake
James Bradley, partner with Carter Jonas, says he expects HVO to be taken up increasingly in the home heating market.
“It has to be a modern boiler capable of using HVO – some will need a bit of injector adjustment.
“It’s definitely environmentally friendly, if not very close to carbon neutral, but is not recognised in residential market assessments. If that comes, it could have much wider use in houses, cottages and diversified businesses,” he says.
Boost to GTL fuel – an alternative to traditional diesel
Interest in gas to liquid (GTL) fuel is growing slowly. At present, there is only one UK refiner, Shell UK, but distributor numbers are increasing.
GTL is a conversion of natural gas into liquid products that would otherwise be made from crude oil.
It can replace traditional red diesel/gas oil and promises lower emissions of some types, and a cleaner burn with no need for engine or tank modification.
It comes at a premium of 3-5p/litre over traditional red diesel, which a growing number of users are willing to pay because they say it causes fewer filter issues, reduces emissions and odour, has good low-temperature performance and is stable in storage.