Diesel down but capacity worries grow FleetOwner

Diesel down but capacity worries grow

The average price for diesel fuel in the U.S. dropped almost six cents this week, falling to $3.897 per gallon compared to $3.956 last week and $4.004 per gallon during the week of May 14, according to data tracked by the U.S. Energy Information Administration (EIA).

However, the agency also expressed concern in a recent brief over the growing lack of spare petroleum production capacity controlled by Organization of the Petroleum Exporting Countries (OPEC), which could potentially contribute to another spike in fuel prices both in the U.S. and worldwide in the near future.

Diesel prices dropped in every major region of the country, EIA said, with the cost per gallon now over four dollars in only three areas: New England ($4.072), the Central Atlantic ($4.023), the West Coast ($4.164), and California ($4.228).

Gasoline also remains on the decline as well, EIA noted, with the average U.S. price down 4.5 cents to $3.669 per gallon this week compared to $3.714 per gallon last week and $3.754 during the week of May 14. Gasoline is now only over the four dollar per gallon mark on the West Coast ($4.227), the agency added.

Though fuel prices are dropping, spare crude oil production capacity is also declining and is now less than 3% of total world crude oil consumption—the lowest proportion since the fourth quarter of 2008—based on EIA estimates. In terms of production figures, oil production capacity averaged about 2.4 million barrels per day (bbl/d) during the first quarter of 2012; down about 1.3 million bbl/d from the same period in 2011, the agency noted.

“Spare capacity can serve as a buffer against oil market disruptions, and it gives OPEC additional political and economic influence in world markets [as] there is little or no spare capacity outside of the OPEC member countries,” EIA said, which defines “spare capacity” as potential oil production that could be brought online within 30 days and sustained for at least 90 days.

“Spare crude oil production capacity is an important indicator of producers' ability to respond to potential disruptions; consequently, low spare oil production capacity tends to be associated with high oil prices and high oil price volatility,” EIA stressed. “Similarly, rising spare capacity tends to be associated with falling oil prices and reduced volatility.”

However, spare capacity must also be considered in the context of a number of other market factors that can drive crude oil prices, such as global supply, demand, and inventory levels, EIA cautioned.  

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