At the start of the summer driving season diesel prices have flip-flopped with gasoline prices.
Historically diesel prices are supposed to be lower than gasoline as the temperature gets warmer. But in a season where the falloff in heating oil demand is supposed to send diesel prices south, instead the Energy Information Administration (EIA) yesterday reported that diesel is just 0.3 cents lower than the record set in April 11.
“[Trucking stakeholders] should be alerted that probably the historical switchover won’t happen and diesel will remain a higher price level than gas throughout the year,” Jacob Bournazian, EIA economist told Fleet Owner. “Historically diesel is cheaper than gasoline in summer and vice versa in the winter. This year looks to be an exception where diesel prices will stay above gasoline and take on its own trend for the year.”
According to EIA economist Neil Gamson, the reason for diesel prices bucking the seasonal trend is unusually strong diesel-specific worldwide demand as well as near-$60 per barrel crude oil prices resulting from high energy demand.
“As long as these crude oil prices stay where they are, we’ll continue to see high diesel prices,” Gamson told Fleet Owner.
“Right now diesel is running higher than gasoline which is unusual,” Gamson continued. “But diesel demand has been growing faster than gasoline. Diesel is being used not just for transportation, but also in electric generators and small generators—particularly in China. In Europe, there’s a trend toward the dieselization of automotive passenger cars.”
The good news is that with the exception of the Gulf Coast, distillate stocks (a petroleum product from which diesel fuel is derived) are at normal levels, Gamson said. But with demand higher year-over-year, “normal” levels is so far not cutting it as the petroleum industry is having difficulty building up enough stocks to accommodate the seasonal rush for distillates in winter, Bournazian said.
“Distillate stocks are in fair shape— they’re in the low end of the average range and that will put some pressure on prices,” Gamson said. “This would be apparent especially as we move into the winter [when heating oil demand rises].”
And if the trend for near-record high diesel prices in the summer continues—it could spell out a series of record-breakers when seasonally high winter prices sets in.
“Toward the end of the summer [the petroleum industry] will try to build stocks for heating season and that will be a critical time to watch out for,” Gamson said.
“Realistically, the only way to build distillate inventories is to back off on demand—which won’t happen— or import from Europe, which based on those prices won’t happen,” Bournazian added. “That said, in the winter we may be looking at new record highs.”