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New environmental rules expected to further lift diesel prices

MarketsFarm — Diesel prices in Canada and the U.S. have increased marginally ahead of winter, which is expected for this time of year — but in the New Year, prices on the farm will likely be higher than normal, as the ocean freight industry adopts new environmental standards.

While a farmer’s demand for diesel is highest during growing and harvest seasons, diesel prices typically increase in the winter due to the percentage of homes that are still heated with oil.

“There are some places in the northeast U.S. and Canada that still use heating fuel, which is essentially the same as diesel fuel,” said Patrick DeHaan, head of petroleum analysis with GasBuddy.

“So prices move up towards the end of the year.”

But as of Jan. 1, a new specification from the International Maritime Organization (IMO) will boost diesel demand. The IMO is requiring large ocean vessels to run on ultra-low sulphur diesel, which will reduce pollutants.

Ocean vessels have the option of installing mechanisms that clean the sulphur out of currently-used bunker fuel — or they can begin fueling with the same diesel most Canadians use, DeHaan said.

“At the turn of midnight, we’ll see a tremendous increase in demand for those diesel products.”

Although Canadian refineries are working to meet increased demand, DeHaan said there looms “an open-ended question regarding if there’s enough supply to meet that demand.

“That’s a point of contention for prices,” he said.

The spike in demand will affect not only subsequent consumer prices at the pump, but also commodity prices. However, it’s too soon to tell if increased freight costs will impact a commodity buyer or seller.

Bids could be lower if producers are expected to cover shipping costs.

“Increased freight costs make suppliers more local,” and that could become a factor when buyers consider international trade partners, said Bruce Burnett of MarketsFarm.

— Marlo Glass reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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