The national average price for a gallon of diesel is expected to exceed the $2.30 level over the next couple of weeks thanks to a recent run-up in crude oil prices, a U.S. Energy Information Administration (EIA) economist said. This would set the stage for more record-setting diesel prices if it exceeds the $2.316/gal. level set on April 11.
“At the second week of April and all of last week a price hike occurred in every crude stream,” Jacob Bournazian, EIA economist told Fleet Owner. “That caused a 10-cent rise in the wholesale diesel market as gasoline went up much higher. There’s still another five cents yet to pass through [on the diesel side]. I’d expect further increases in diesel due to last week’s change in crude oil prices.
“April is still showing strong diesel demand,” Bournazian said noting that this month demand is about 1- to 2% above year-over-year’s consumption levels. “Strong demands kept diesel inventories from growing.
“Distillate demand has dropped off but diesel demand has not,” he continued. “The accumulated distillate inventory is occurring in the high-sulfur distillate markets [which is typically not used to produce diesel fuel]. Refiners have certainly increased production of low sulfur diesel but it’s just being consumed while none of it is going into inventory.”
Diesel in the Mid-Atlantic has been the tightest and that will keep diesel firmed up in the East Coast, Bournazian noted.
On the political front, President George W. Bush met with Saudi Crown Prince Abdullah Monday to discuss ways to bring down rising crude oil prices. Crude futures markets were calmed slightly by the meeting as light, sweet crude for June delivery fell 82 cents to $54.57 a barrel on the New York Mercantile Exchange that very day.
Bournazian noted that there are indications that Saudi Arabia might make significant investments to expand crude capacity, but this is a long-term proposal that has no impact on the markets today. “Saudi Arabia is talking about investments in the next five years. That’s needed but certainly won’t change the outlook to this year or 2006.
“We’re seeing a typical pattern where it’s reasonable to expect crude to stay in the mid-$50 range through 2005 and that will keep diesel and gas well above $2/gallon range,” Bournazian added.
