The U.S. Dept. of Energy (DOE) has projected no major relief for diesel prices through 2006, mostly due to worldwide energy demands expanding more rapidly than crude oil production growth.
DOE has raised its projected average price for crude oil for the first quarter of 2005 to be about $46.70 per barrel-- $11 more than the same period last year. U.S. crude oil inventories, after being relatively low through the beginning of 2004, rose slightly above average after OPEC countries boosted crude oil production.
Distillates—which are processed into diesel fuel as well as heating oil—are currently at an average level of stocks thanks to a fairly mild winter in the Northeast. This leaves a bigger cushion for diesel. “The Northeast and North Atlantic regions combined consume about 75-80% of the nation’s consumption of heating oil,” Neil Gamson, DOE economist told Fleet Owner.
On-highway diesel is by far the largest consumer of distillates, having comprised 62% of the pie in 2003 at 37 billion gallons.
Worldwide petroleum demand is expected to outstrip expansion of non-OPEC supply and global refinery capacity— which will keep energy prices high. However, worldwide demand is also expected to grow at a decelerating rate to average 2.4% per year between 2004 and 2006. That would be down from the 3.4% growth seen in 2004.
The good news is although diesel prices will remain high, at least it appears to be stable. “Basic supply factors indicate stabilizing price patterns and stabilizing supply,” DOE economist Jacob Bournazian told Fleet Owner “Refiners have increased low sulfur diesel production capabilities since last year.”
And for the next four to six weeks, Bournazian expects diesel prices to stagnate or drop slightly as demand for distillates falls 5 to 10%. “The best you can expect is a penny or two decline based on the stable crude prices,” Bournazian said. “We’ve seen some stabilization in the crude oil prices. And with a stable wholesale pricing market there’s plenty of time for wholesalers and retailers to pass through the crude increases up until Christmas. Based on what we’ve seen in the past couple weeks in retail prices, it’s cresting right now.
“After April you will see prices decline another penny or two,” Bournazian continued. “Crude prices are the only danger. However, crude inventories are now at the higher level of the five-year band-- a dramatic change from last year. In the meantime with stable crude prices it gives refiners a chance to contract on a longer-term basis for crude oil, and secondly it drives the speculators (middlemen) out of the market.”