Diesel price break imminent, EIA says

Diesel price break imminent, EIA says

Diesel prices will fall on increased production and lower demand, Energy Department says

After four consecutive weeks of record high diesel prices, the trucking industry may finally start to see a rollback as early as this week, according to the Energy Information Administration (EIA).

Wholesale diesel prices across the U.S. fell between 15 to 20 cents as a lucrative production environment prompted refineries to boost output last week. Also stocks of distillate— a petroleum product that can be processed into either heating oil or diesel fuel— expanded as households consumed less heating oil.

“Last week was an important turn for inventory levels since there was a massive collapse in the wholesale diesel markets,” Jacob Bournazian, EIA economist, told Fleet Owner. “Retail prices are going to start gradually eroding downward. Consumers should expect a 5- to 7-cent decline by the same time next month.

Regions with the most retail competition will react more quickly to the fall in wholesale prices, with Midwest prices being the most likely to drop first. EIA projected last week that retail diesel will average $2.24 in the summer in its short-term energy outlook.

“High profit margins for producing diesel will cause inventories to grow. At this point we’re going to watch how quickly the industry rebuilds [diesel] stocks by the end of August because they have a lot of territory to cover,” Bournazian said, noting that in early April, stocks stumbled on extended heating oil demand. “Strong production runs in refineries will stay strong because profits margins are higher than gasoline runs. The inventory build will continue through May.”

But EIA expects crude oil prices to stay above the $50 per barrel through the remainder of 2005 and 2006, which would keep diesel prices at the lower $2 level.

“Our assumption on crude oil pricing is that OPEC will continue to keep world markets well supplied,” Bournazian said. “I think prices are at such high levels that they have already raised concerns in OPEC countries that don’t want to drive world markets into recessions. OPEC has already said they will increase production by a half-million barrels per day in anticipation of increases in world demand. They are playing a sophisticated game of increasing capacity while keeping prices stable (at the $50 level).”

The national average diesel price last week increased 1.3 cents to $2.316 per gallon, according to EIA. This sets a new record high and marks a 33.3-cent jump over ten straight weeks of increases since Feb. 7.

All regions posted ramped up prices, but the West Coast and California tied for the largest hike, up 4.4 cents to $2.585 and $2.625, respectively. California also was the most expensive region for diesel fuel purchases.

Prices in the Midwest were the most stable, as prices went up only 0.5 cents to $2.263. The cheapest region in which to purchase diesel was the Lower Atlantic region, at $2.244.

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