The stage is set for diesel and gasoline prices to soar beyond the records set last summer. Energy markets are seeing demand exceeding the limits of refining capacity, crude oil prices have reached new records and new fuel specs for both diesel and gasoline are coming online.
According to Oil Price Information Service markets editor Denton Cinquegrana, most of the blame falls on lack of refining capacity. Today, more than six months after Hurricanes Katrina and Rita struck the Gulf Coast, refining capacity remains hampered as routine maintenance on the facilities slated for the late third and fourth quarter of last year was deferred to this year.
“Refineries aren’t up to the task,” Cinquegrana told FleetOwner “After the hurricanes, energy companies left refineries that normally would be down for maintenance running to keep the market wet.”
Now in the beginning of the summer driving season energy companies are working through their backlog of maintenance— bottlenecking supplies during peak gasoline demand season. But stretched refining capacity hasn’t affected gasoline alone.
“Right now, all finished products are expensive whether diesel, gasoline or jet fuel,” Cinquegrana said.
To a lesser extent, new record high crude oil prices—driven by geopolitical instability-- have also boosted pump prices. However, there is more crude oil available than there is refining capacity, Cinquegrana pointed out.
“During the summer time we’ll hit a roadblock along the way. There’ll be a [refining] hiccup or two but hopefully no major issues,” Cinquegrana said. “Because of the high price of fuel and huge refining margins you have companies adding capacity to existing refineries. As soon as 2007 and definitely by 2008 we should start seeing some additional capacity. Until then we won’t see production exceed demand for at least a couple of years.”
Also at issue is changing fuel specs for both gasoline and diesel. The gasoline market is now phasing MTBE additives out of retail pumps—which has the cost of ethanol additives to increase.
On June 1, refiners are required to switch production from low sulfur diesel to ultra low sulfur diesel (ULSD). The transition is expected to bring another price premium to the pumps once the cleaner diesel arrives anytime up to two weeks after the June 1 start.
Retailers will be required to begin transitioning to ULSD starting Sept. 1 and be finished by no later than Oct. 15.
For more detailed diesel price information, go to www.fleetowner.com/diesel.xls.