Oil industry associations are again warning that new government mandates for low-sulfur fuel specifications could create havoc with diesel prices, according to Oil Price Information Service (OPIS).
"You can easily make a case for a 20 cts per gal surge or fall in fuel prices," said OPIS chief oil analyst Tom Kloza. "In fact, you can see elements conspiring to push some regional markets sharply higher, even as world prices fall."
Similar predictions were made during the 1990s only to see suppliers adapt to new regulations, which OPIS said ultimately lead to accusations that industry sentinels had "cried wolf."
However, refinery consolidation had a different meaning in 2000-01 as medium-sized companies wanted to get bigger and big suppliers wanted to gain even more critical mass. Now, cost-cutting is king and more than a dozen refineries face sale or closure by year's end because of slumping margins and high desulfurization expenses.
Refiners won't be required to make the lower-sulfur diesel until 2006, but OPIS said the high cost of sweetening the spec for gasoline production, fending off foreign imports and beginning the construction process for diesel desulfurization units could tighten supplies in some regions as early as this winter.