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Diesel drops another nickel

June 5, 2012

The U.S. average price for diesel fuel dropped another nickel during the first days of June, falling to $3.846 per gallon from $3.897 per gallon during the last week of May, according to data tracked by the Energy Information Administration (EIA), and is now 9.4 cents lower per gallon when compared to the same week of June 2011.

Over the last two weeks, the average cost for diesel in the U.S. is down over 11 cents per gallon, the agency noted, with diesel now only over $4 per gallon in three regions of the country: New England ($4.036), the West Coast ($4.101), and California ($4.169).

The main reason behind the continuing slide in U.S. diesel costs is a steep drop in global oil prices; the Brent crude oil indices, for one, feel to $96 per barrel the is week – a 16-month low – driven by weak U.S. economic data and the ongoing Euro zone debt crisis.

“Global demand is softening, we have got recessionary elements in Europe [and] a small slowdown in Asia Pacific,” Peter Voser, CEO of global petroleum firm Royal Dutch Shell, told Reuters in an interview at the World Gas Conference in Kuala Lumpur, Malaysia, this week.

“At the same time, some of the geopolitical elements of price volatility over the past few months have kind of receded, and therefore we see a softening of prices which I expect to go well into the second half of this year,” he added.

U.S. average gasoline prices also remain on the downswing, falling 5.7 cents to $3.612 per gallon this week compared to $3.669 per gallon during the week of May 28 and $3.714 per gallon during the week of May 21. Currently, U.S. average gasoline prices are 16.9 cents per gallon lower now compared to the same period last year, EIA reported.

Gasoline is now only over $4 per gallon on the West Coast ($4.185); however, compared to the same week in 2011, the cost of gasoline is 25.4 cents higher per gallon on the West Coast and 4 cents higher per gallon in the Rocky Mountain region, the agency said.

Going forward, one of the main factors EIA will be tracking in relation to oil and fuel prices is the weather, specifically in terms of hurricanes and how such storms can impact U.S. drilling and refinery operations.

The National Oceanic and Atmospheric Administration's (NOAA’s) Climate Prediction Center said on May 24 that during the six-month hurricane season beginning June 1, there is a 70% chance of 9 to 15 “named storms” forming in the Atlantic Basin, of which 4 to 8 may strengthen to hurricanes. Of those, 1 to 3 may become major hurricanes (Category 3, 4, or 5), the agency said.

During past hurricane seasons, from 1981 through 2010, the Atlantic basin averaged 12 named storms and 6 hurricanes each year—3 of which were major hurricanes. As of June 1 this year, there have been two named Atlantic Basin storms (Tropical Storms Alberto and Beryl) NOAA pointed out.

“Tropical storms and hurricanes can temporarily disrupt the U.S. oil and natural gas supply chain, which includes producing fields, gathering, processing, refining, and transportation operations, especially in the Gulf Coast region,” EIA noted – particularly in the Gulf of Mexico (GOM) area, which is a key locale for U.S. crude oil and natural gas production.

“The GOM region provided nearly one quarter of total U.S. crude oil production in 2011, the highest share among Federal offshore regions and second only to Texas among individual states,” EIA noted. “Driven by increasing volumes associated with deepwater and ultra-deepwater development activity, the GOM region helped to reverse a decades-long decline in U.S. crude oil production in 2009.”

By contrast, the potential impact of hurricanes on U.S. natural gas supply is comparatively muted, as the GOM region accounts for a relatively modest portion of total U.S. natural gas production – only about 8% of total U.S. marketed natural gas production in 2011, down significantly from a decade ago, when the region had an approximate one-quarter share, EIA said. 

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