Prices for both gasoline and diesel are expected to stay relatively stable over the next couple of weeks, according to an Oil Price Information Service (OPIS) analyst. Gasoline demand will ramp up when the Memorial Day weekend kicks off the summer driving season, but by then refiners should soon be able to boost output as it completes its backlogged maintenance schedule.
Inventories remain generally strong across the board. But with many refineries down to work through a log jam of maintenance, which was caused by energy companies deferring maintenance to keep supplies rolling immediately following Hurricanes Katrina and Rita, finished product was limited and therefore prices stayed high. That bottleneck may finally be singing its swan song, said Denton Cinquegrana, OPIS markets editor.
“We’re definitely coming down the tail-end of that pipe,” Cinquegrana told FleetOwner. “To use a baseball analogy, we’re in the seventh or eighth inning of that turnaround.”
According to the Energy Information Administration, in early May oil inventories were at a level of 347 million barrels, a 17.3 million (5%) premium over the same period last year. Distillate stocks, a petroleum product from which diesel is derived, were at 114.7 million barrels, 10% higher than the same period last year. Gasoline stocks, at 205.1 million barrels were 4% tighter than they were last year.
“Having plenty of crude oil and inventories is great but when you don’t have refining capacity, you end up with less product,” Cinquegrana explained. “Diesel…does look like it’s leveling off and prices will calm down a little. If we’re not past our pre-season peak, we’re pretty close to it.”
Today, according to OPIS, national diesel prices averaged $2.956 per gallon, while regular gasoline averaged $2.887. For the week ending May 7, EIA reported the diesel price average to be $2.897 and $2.909.
Memorial Day to kick off ULSD
On June 1, refiners will be required to meet the Environmental Protection Agency mandate to produce diesel with sulfur content of no more than 15 parts per million (ppm), known as ultra low sulfur diesel (ULSD). That will mark the first phase in ensuring ULSD will be available in all retail outlets nationwide which sell diesel by Oct. 15, with California setting an earlier deadline to Sept. 1.
“We’re still in the very early stages right now,” Cinquegrana said. “In transferring over [to ULSD] it’s really such a low grade of sulfur compared to where we are (500 ppm). You’d have to expect to see a [supply] hiccup here or there. So far, we’re not hearing much in terms of supply issues. But when it comes to the transition, we’re not even past the top of the first inning yet.”