Diesel Prices Set to Cool Over Summer

The U.S. Energy Information Administration (EIA) has forecast that diesel and gasoline prices will continue to fall throughout the summer. The prediction relies on OPEC (Organization of the Petroleum Exporting Countries) sustaining its high crude output levels and no major sustained disruption occurring in oil exporting countries. “It looked to us as if there would be enough crude capacity in terms

The U.S. Energy Information Administration (EIA) has forecast that diesel and gasoline prices will continue to fall throughout the summer. The prediction relies on OPEC (Organization of the Petroleum Exporting Countries) sustaining its high crude output levels and no major sustained disruption occurring in oil exporting countries.

“It looked to us as if there would be enough crude capacity in terms of Saudi Arabia, at least for a few months,” Dave Costello, EIA economist told Fleet Owner.

Recent OPEC pledges to up output quotas and Saudi Arabian promises to increase capacity by opening new oil fields have had an easing effect on investor trading. At a June 3 meeting, OPEC raised its July quota from 23.5 million barrels per day to 25.5, with a 26-million ceiling pending for August.

It remains to be seen whether supply assurances from the Middle East actually deliver, Costello said. In May, OPEC had already been producing 26.2-million barrels per day. OPEC is estimated to have between 0.5- to 2-million barrels per day of excess capacity, Costello said.

“In doing the latest outlook it is our half-way optimistic assessment that we would get more production from OPEC,” Costello said.

Although there has been a one-month downward trend in diesel prices, truckers shouldn’t expect to see prices falling back to where they were two years ago. Costello points to the rapid growth of countries such as China causing a thirst for oil that is beginning to tap out suppliers, including OPEC.

“If world [economic] growth continues, we aren’t going to expect [a major price drop] anytime soon to happen,” Costello said, adding that the excess capacity OPEC has is relatively small compared to ballooning worldwide demand. “It’d take a downturn in a major part of the world economy.”

But that’s not to say there isn’t extra capacity to be found in non-OPEC sources. “As long as economic growth continues, it’s probably going to push up the margin of supply as it’s now doing. In the meantime the amount of growth is pushing pretty hard against the margin.”

According to The Associated Press, Guy Caruso, EIA administrator, told a Senate committee that the price of crude is expected to drop to around $35 a barrel later this year— an improvement over the $42 peak in late May but still far above the $20- to $30 range OPEC originally shot for.

“We’re still talking about prices in the $30’s for this year and 2005,” Costello said.

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