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West Coast drives up diesel

West Coast drives up diesel

West Coast, Washington drives up national diesel prices

The national average price for a gallon of diesel soared 9.8 cents last week to $2.118, marking the highest price seen in 15 weeks, according to the U.S. Energy Information Administration (EIA). Over the last three weeks, diesel prices have risen 13.8 cents, a sharp contrast to prices that were relatively stable through January and most of December.

All regions last week reported considerable increases in pump prices, with the New England region averaging the smallest, up 4.3 cents to $2.241. California reported the biggest price spike, up 11.7 cents to $2.376. The most expensive region to fill up in was the West Coast, which averaged $2.412 on a 9.1-cent hike. The Gulf Coast region remained the least expensive, averaging $2.035 on a 9.2-cent jump.

Falling distillate stocks— petroleum products that are processed into either heating oil or diesel— are at fault for upward price pressure, according to EIA economist Neil Gamson. A recent cold weather snap through the U.S. created more heating oil demand, while distillate imports fell as a result of increasing demand in Europe, Gamson said. This puts distillate stocks “at the lower-end of average levels.”

Gasoline prices, however, received a more modest 2.3-cent bump last week as above average stocks kept prices stable.

Diesel prices on the West Coast and California had spiked dramatically as a result of refinery problems, particularly with California’s low sulfur diesel blend.

“California has a unique type of diesel that is more expensive to produce,” Gamson told Fleet Owner. “When there are problems [with California diesel refiners], considering California has about 80% of the West Coast population, it’s going to affect the neighboring states. In Washington there may be some unexpected refinery problems and that will make that region tight.”

In fact, diesel prices jumped so severely on the West Coast that the American Automobile Assn. (AAA) saw a spike in diesel price-related inquiries from its primarily gas-consuming members.

“We’ve had more calls from our AAA customers on diesel than gasoline, which is unusual,” Janet Ray, spokeswoman for Washington AAA told Fleet Owner.

“A few weeks ago a refinery in Alberta, Canada, the Suncor facility, went down,” Ray explained. “At that point Canada started buying up diesel from the West Coast. When you have all this demand with Canada buying up diesel from the States, the market forces take effect. There might have been some turnaround at the refineries in Washington State from shifting from winter to summer diesel production.”

Jacob Bournazian, EIA economist, told Fleet Owner that conditions in refineries, supply, and environmental regulations have come together to create a perfect storm for exorbitant spikes in Washington.

“Refinery maintenance in the Northwest got dragged out longer than expected,” Bournazian said. “That was ill-timed given the situation, because Washington State also implemented new requirements on a new diesel fuel lubricity specification in February. That hindered outside suppliers supplying that condition.

“That along with environmental regulations and distillate shortages, diesel prices went up 30 cents in Washington,” Bournazian continued. “This is the first time in a long time where other states besides California are driving up national prices.”

However, high prices in the area will attract new suppliers which will bring costs down to more acceptable levels, he added. It will just take some weeks before this could be done logistically.

More worrisome is the fact that crude oil futures have traded above the $50-level since last week, EIA’s Gamson noted. Since it typically takes a few weeks for an increase in crude prices to be passed down to the retail level, if the current price is maintained, we could see higher retail prices in a few weeks. However, since demand for distillate typically drops off as milder weather kicks in, it could counteract the recent upswing in crude oil prices, Gamson said.

“Over the weeks ahead, prices will stay fairly robust,” Gamson said. “There should be some relief as we come out of the heating season, but we have to see what the crude prices do.”

TAGS: Operations
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