Petroleum markets continued their downward spiral this week, led lower by diesel fuel. Futures prices, which don't include taxes or other expenses, fell as low as 95 cents per gallon on Friday, the lowest price since 2004.
Diesel is predominantly used in large, powerful vehicles, but it is also an important heating fuel, especially in the Northeast, where consumers are enjoying sharply lower heating oil bills this winter.
While gasoline futures aren't under a dollar yet, they have been heading that direction, trading for a mere $1.05 per gallon, which translates to retail prices well under $2 per gallon for most drivers.
Fuel prices are collapsing as US inventories for both fuels swell, while US crude oil stockpiles are nearing full capacity. Unless US producers sharply reduce production, the oil market is bracing for the possibility that there will be crude oil without a place to go, which could tank prices well below Friday's value of $29 per barrel.
USDA Cuts Crops
In its first major crop report of the year, the USDA shocked the markets with a new outlook for smaller corn, wheat, and soybean supplies.
On Tuesday, the USDA sliced its estimate of last fall's corn and bean harvest by about 50 million bushels each, which led prices to pop.
More shockingly, the USDA also dropped its projection of this winter's wheat crop acreage by almost 10% to only 36.6 million acres, the second-lowest acreage since 1913.
Most US wheat is sewn in the late fall and goes dormant over winter, only to emerge in the spring and be harvested in the early summer. Due to wheat's unusual calendar, US crop watchers focus on wheat over the winter, especially watching for extremely cold temperatures that can lead to a freezing of the dormant wheat seedlings, known as winterkill.
As a result of the sharply lower acreage estimate, wheat prices jumped to a three-week high at $4.84 per bushel. Despite the cut in acreage, the global wheat market will likely remain well-supplied, which could keep prices weak.