07
Apr

Australian farmers stockpile cheap diesel amid coronavirus ‘demand destruction’

Key Points:

  • Some WA farmers are panic buying extra on-farm fuel storage capacity to take advantage of low fuel prices
  • Tank suppliers have seen an uptick in inquiries for diesel, fertiliser and water tanks due to uncertainty around COVID-19
  • Experts say low prices are likely to continue, and supply disruptions are unlikely due to global market behaviour

Tank manufacturers have seen a spike in demand for on-farm fuel storage as diesel prices drop and farmers become concerned about supply in the lead up to seeding.

Farmers are stocking up on fuel at some of the cheapest prices seen in a decade, which is expected to be a boon for profitability in dark economic times.

But experts say the low prices at the bowser are likely to continue in coming months, and concerns from industry about potential disruptions to supply are unwarranted.

Farmer Kallum Blake, who runs a mixed sheep and cropping business at Katanning, in WA’s Great Southern, said cheap diesel prices were a welcome development.

Normally we have some fuel on hand by about now but the way the price went we were scrounging around filling everything we can.

“Coming into seeding, being able to buy fuel that’s 40 cents per litre cheaper than the same time last year makes a big difference to an operation.

“It will be a really important factor when putting a crop in because fuel is one of the largest expenses.”

Panic buying

Chad Southcott works for a WA-based tank storage manufacturer. He said the company had seen a 70 per cent increase in demand year-on-year for diesel storage capacity during March because of panic buying.

As the COVID-19 situation has really ramped up we’ve pretty much straight away seen a large increase across the board of people looking to get water, fertiliser and diesel tanks.

“We’ve really noticed the increase in demand for diesel storage… people are saying they haven’t seen fuel prices this cheap, but they’re also concerned they may not have enough to get them through so they’re trying to store as much as possible.

“Farmers are concerned that if companies shut-down they may not be able to get their products.”

Network ‘awash’ with fuel

Mark McKenzie from the Australasian Convenience and Petroleum Marketers Association said potential supply disruptions were unlikely.

“We’re awash with fuel in the network so every possible inground tank and inground terminal, fuel storage vessel and silo in ports is being filled as we’re storing fuel that isn’t actually going into the market,” he said.

“Given we have so much oil around the place we’re getting a discounting that hasn’t occurred in past.

“[Russia and OPEC] usually manage the supply down and you don’t get this big discount because they’re trying to make sure they’re maintaining good prices.

But the demand destruction that is occurring as a result of COVID-19 across continents of North America, Europe, the Asia Pacific – the oil producers are getting pretty nervous.

“What they’re doing is they just keep discounting so we’re seeing oil prices go to some of the lowest they’ve been in almost 25 years.”

‘Very low prices’ to continue

Mr McKenzie said low prices were likely to continue for the foreseeable future.

“We’re starting to see the lowest prices for diesel we’ve seen in 10-12 years,” he said.

I think it’s going to go a little bit lower as we go deeper into the COVID-19 crisis because we’re going to see a greater downturn on the basis of excess supply.

“On a wholesale basis you’re going to enjoy very low prices.”

 

Extracted from ABC