As crude oil prices continue hitting record levels, prices for US on-highway diesel fuel hit an all-time high as well. For the week of Apr. 21, the national average for on-highway diesel fuel reached $4.143/gal, according to the US Energy Information Administration’s weekly survey.
This latest price was an increase of 8.4¢/gal from the previous week’s record-breaking average of $4.059/gal and up an astounding $1.292/gal from the level of a year ago. Diesel prices rose on the West Coast by 7.9¢/gal to $4.25/gal, while in California alone they soared to $4.317/gal. The New England area had the largest gain: 10.7¢/gal to $4.346/gal. The lowest prices were in the Gulf Coast region at $4.077/gal for the weekly survey. The Rocky Mountain region saw the smallest increase in price, 7.2¢/gal, to $4.111/gal.
Though most of today’s media coverage focuses on regular unleaded gasoline prices for US automobiles, the diesel market recently has seen unprecedented prices. Before Hurricane Katrina battered the Gulf Coast refining industry in August 2005, diesel fuel prices were running around $2.50/gal. The week after Katrina, diesel prices jumped 12%. Currently, diesel fuel is 45% above year-ago averages. Regular unleaded gasoline is up 22%.
Low stocks
Contributing to currently high diesel fuel prices are low distillate inventories. Distillate stocks, which include both diesel fuel and heating oil, ran low throughout the heating oil season that just ended.
Winter was cold on the East Coast, where most heating oil is consumed. EIA reported that for the week ending Apr. 11 distillate stocks were 106,079,000 bbl, compared with 117,327,000 bbl a year ago—a 10.6% drop.
While US refiners this winter focused on increasing motor gasoline production in response to high prices, distillate production suffered. Currently, distillate output is 4.5% below last year’s rate of 4.217 million b/d. In addition, the refinery utilization rate for the week ending Apr. 11 was one of the lowest that EIA has recorded at 81.4%. The week after Hurricane Rita, refinery utilization slumped to 69.8%. The low point before that was in 1992 at 79%.
Refinery utilization recently has been hit by a series of unscheduled outages (see Market Journal, p. 72).
Tight supplies of distillate and diesel are being felt elsewhere in the world. As demand for heating oil remained strong through winter in the US, Europe and emerging economies felt the pain, too. With heating season over, an easing of diesel prices can be expected.
Cost of diesel
EIA estimates that about 60% of the price of a gallon of diesel is related to the price of crude oil, compared with 72% for gasoline.
Tight refining capacity, international demand, imbalances related to upsets such as refinery outages and pipeline disruptions, and seasonal forces influence demand for diesel, as they do gasoline demand.
Refining costs represent around 21% of the retail price of diesel vs. 8% for motor gasoline. Taxes and the costs of distribution and marketing account for 19% of the diesel price and 20% of the gasoline price, according to EIA.
EIA notes that the US diesel price has exceeded the gasoline price generally year-round since September 2004. Before that, diesel usually sold at a discount to gasoline except when heating oil values rose.
EIA attributes the new pattern to strong worldwide demand for diesel and other distillate fuel oils, especially in China, Europe, and the US.
Also, all but the smallest US refiners have had to supply ultralow-sulfur diesel for highway use since 2006. The requirement has increased diesel production and distribution costs.
EIA also notes that the federal excise tax, at 24.4¢/gal, is 6¢/gal higher than that of gasoline.
