Fleetowner 1161 Refinery

Expect more summer diesel records

July 6, 2005
A new record high was posted as the national average price for a gallon of diesel crawled up another 1.2 cents to average $2.348 per gallon

A new record high was posted as the national average price for a gallon of diesel crawled up another 1.2 cents to average $2.348 per gallon, according to the Energy Information Administration (EIA). This marks the second week in a row of record-breaking prices.

The Lower Atlantic region was the only one to post a decline in prices, as it fell 0.3 cents to $2.315. The Rocky Mountain region, which had consistently enjoyed relatively low prices, saw the highest increase as prices surged 4 cents to $2.328. California is the most expensive region in which to fill up at $2.554 on a 3.2-cent hike. The Gulf Coast region holds the lowest prices at $2.29 after a modest 0.2-cent increase.

EIA economist Jacob Bournazian said diesel price patterns are likely to stay pegged with crude oil prices— also at record high levels trading at roughly $60 per barrel. For the short term, this trend will likely add another two to three cents to diesel prices over the next couple weeks.

“Crude oil prices have gone up about $10 per barrel since the middle of May,” Bournazian told Fleet Owner. “Retail diesel prices have been moving with wholesale, going up 16 to 17 cents since then.”

Diesel prices are typically lower in the summer because slack demand for heating oil frees up distillate supplies, a petroleum product from which diesel and heating oil are derived. But with recent diesel record highs, this has not been the case.

Heightened worldwide diesel demand, especially in China and India as well as Europe, has prevented refiners in the U.S. from building up distillate stocks. For example, in India there has been a strong demand for diesel-fueled cars, while in China there were recent investments in diesel-powered electric generators.

“What you see in China and India is increased diesel demand that will stay 12 months out of the year,” Bournazian said. “You can’t look to Asia for more distillate.

“The market is already assessing tight fourth quarter market conditions,” he continued. “Heating oil companies are offering contracts for winter and they’re already expecting a rise from where we are now. They look at the fact that distillate inventories didn’t grow [as they typically do over the summer] and low sulfur diesel fuel inventories have been holding flat. The conclusion is if you can’t build inventories in the summer, you certainly can’t in the winter.

“This trend has been building over the last year,” Bournazian added. “The true ramifications were played put last winter when seasonal demand surged and we saw prices reach record levels. I expect to see that same scenario unfolding but at a slightly higher price level this winter.”

For detailed information on diesel fuel prices go to www.fleetowner.com/diesel070405.xls.

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