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The return of sub-$2 diesel

Feb. 17, 2016
It’s definitely a high water historical mark (though perhaps “low water” is a more appropriate term in this case) when diesel fuel prices fall below $2 per gallon, since that hasn’t happened in over 10 years.

It’s definitely a high water historical mark (though perhaps “low water” is a more appropriate term in this case) when diesel fuel prices fall below $2 per gallon, since that hasn’t happened in over 10 years.

Yet here we are, for the Energy Information Administration (EIA) reported this week that average retail price for on-highway diesel fuel in the U.S. declined to $1.98 per gallon – the first time it dipped below the $2 per gallon mark since February 14, 2005, though the agency quickly noted diesel prices did hover around $2 per gallon back in early 2009.

EIA noted that this current “low state” for diesel fuel prices reflects both decreasing crude oil prices and increasing inventories of crude oil and refined products worldwide – something that doesn’t seem much like changing, especially since Iran won’t play ball with proposed global oil production cuts.

While U.S. average regular retail gasoline prices moved below the $2 per gallon mark a little over a month ago, diesel prices remained more stubborn as they tend to be higher than gasoline prices, EIA explained; reflecting strong global demand for diesel, federal fuel taxes for diesel that are six cents/gal higher than those for gasoline, and the higher production cost of ultra-low sulfur diesel.

By the way, the way EIA calculates average retail diesel prices is by surveying what the agency calls a “statistically representative sample” of 403 retail truck stops and service stations across the “lower 48” states every Monday morning to find out their self-serve cash-only diesel prices, including all taxes, as of 8:00 a.m. local time, with those survey results reported in the agency's Gasoline and Diesel Fuel Update later that same day.

FYI, EIA noted that expects diesel prices to remain relatively low throughout 2016 and 2017, averaging $2.22 and 2.58per gallon, respectively, based on its most recent Short-Term Energy Outlook.

But are low oil prices and the low diesel fuel prices they generate good from a long-term economic perspective?

Some commentary in recent years (go here and here for some examples) voiced the concern that low oil prices would stall work on alternative fuels – the kinds of fuels needed when oil prices head in the other direction.

I talked about this in a blog post last year, noting how we went through a similar fuel price crash between 1998 and 1999, only to see prices start rebounding furiously in 2000. Indeed, I covered a trucker protest in 2008 that focused on how high fuel prices were hurting their efforts to make a living.

So will oil prices soon rebound again, like in the past, and burst all the happy bubbles regarding low energy prices once more? We’ll see.

About the Author

Sean Kilcarr 1 | Senior Editor

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