Analyst: Diesel prices may drop this summer
Staff -- Logistics Management, 5/1/2001
Although motorists could pay dearly for gasoline this summer, truckers may not share the same fate, says one leading energy analyst. Because of a surplus of petroleum distillates and moderate demand for fuel as the economy continues to soften, prices for diesel fuel might even decrease, says Tim Evans, a senior energy analyst at the market research firm Pegasus Energy in New York City.
Although gasoline and diesel are both refined from crude oil, the markets for the two fuels are quite different, Evans reports. In mid-April, gasoline inventory in the United States was 8 million barrels lower than it was a year ago. On the other hand, petroleum distillate stocks, which encompass jet fuel and home heating oil as well as diesel, were up 9.4 million barrels from where they were at the same time a year ago. "You've got one market in surplus while the others show a deficit," explains Evans. "The [potential] for price spikes is really on the gasoline side."
On top of that, Evans says, stocks of crude oil stand at their highest level in the United States since August 1999. Two-thirds of each barrel of crude oil is generally refined into gasoline while the other third is processed into distillates. As the nation's oil refineries ramp up production to make gasoline for this summer, they will also manufacture additional diesel fuel. As a result, he says, diesel will be in abundant supply.
Because the supply of diesel fuel is plentiful, pricing will be determined by the level of demand. Over the past couple of years, demand for diesel fuel has been steady because of a robust economy. If the economy remains sluggish, then the supply of diesel fuel will match demand or even exceed it. "With the general economic outlook, demand will be soft," says Evans. "If the economy does sink into a recession, there might be a more bearish scenario. And if that happens, you're looking at a downward trend in diesel fuel prices."
At press time, the federal Energy Information Agency (EIA) reported that the average national price of diesel fuel was $1.43 a gallon. Gasoline was higher, with an average nationwide price of $1.56 a gallon.
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