According to The Wall Street Journal Online the price for crude oil traded above $40 per barrel at the New York Mercantile Exchange for the first time in 13 years. The Department of Energy cites increased demand and lower than expected imports are contributing to higher production and acquisition costs.
The price of diesel has been inching its way up steadily since the beginning of the year. Diesel jumped from $1.503 per gallon in the first week of January to its current figure of $1.745— an average increase of a 1.3-cents per week.
According to Jacob Bournazian, economist for the Energy Information Administration, the increases in national diesel prices are consistent with the increases in crude prices. Demand for diesel is at a seasonal low, which is a contrast from spikes in gasoline prices due to seasonally high demands, he said.
However, the big exception to the national trend of steadily rising diesel prices is the West Coast, where prices are skyrocketing.
“In terms of refining, they are at full capacity,” Bornazian told Fleet Owner. “In that region stocks are very low— below their 5-year average. Anytime there’s a supply disruption, prices tend to spike. That’s been the trend since February in that region.”
According to Department of Energy weekly indexes, since April California diesel prices shot up 34.2 cents per gallon, while West Coast prices soared 37 cents. The national average, by comparison, went up 9.7 cents— driven primarily by volatile West Coast prices in an otherwise stable market that is consistent with crude prices.
California and the West Coast are suffering volatile fuel prices not only because of low stocks, but also because they are the furthest from the supply chain nationally, Bournazian said.
Low stocks, tight capacity, and the region’s long distance from the supply chain has left the West Coast vulnerable to recent power-outages that have shut down California refineries, as well as pipeline failures.
“Until you see refineries and pipelines restart, you’ll see trading at a frenzied pace,” Bournazian said.
“The Gulf Coast refines fuel for markets all the way toward the West Coast. There’s lots of extra capacity to meet demand,” Bournazian added, noting the region’s close proximity to supply.
The Gulf Coast has among the nation’s lowest diesel prices, currently $1.645 per gallon. Prices have gone up 5.9 cents since April in the region. The Gulf Coast— which accounts for 40% of the nation’s fuel refining— has enjoyed stable prices.
Adding to the strain in California’s refining capacity is the fact that the state uses its own unique diesel blend that is refined primarily in California itself. Bourbazian stressed that CARB (California Air Resources Board) diesel is not a major culprit in volatile prices in the state, but did say there are circumstances where it plays a role.
“It certainly is a factor that affects overall supply conditions. When there’s an unplanned refinery outage they [critics of CARB diesel] have a solid point,” he said.