Future Diesel Fuel Pricing

[Ecker]

Todays Wall Street Journal has a short article on page A4 discussing future diesel fuel price outlook, which is worth reading if you can get a copy. It covers many of the same things I have written about in recent postings e.g. rising sales of diesel cars in Europe and in US, no new diesel refinery capacity until 2012 in US, etc. One sentence spells it out clearly - "... some in the refining industry see an opportunity. Their bet: Diesel demand(italics word is mine) is poised to take off. Since Feb 1 diesel 16% gasoline 8% and EIA forecast for 2009 1.66% twice as fast as gasoline. "

Bottom line diesel price will escalate faster than gasoline.

[Ecker]

Todays Wall Street Journal has a short article on page A4 discussing future diesel fuel price outlook, which is worth reading if you can get a copy. It covers many of the same things I have written about in recent postings e.g. rising sales of diesel cars in Europe and in US, no new diesel refinery capacity until 2012 in US, etc. One sentence spells it out clearly - "... some in the refining industry see an opportunity. Their bet: Diesel demand(italics word is mine) is poised to take off. Since Feb 1 diesel 16% gasoline 8% and EIA forecast for 2009 1.66% twice as fast as gasoline. "

Bottom line diesel price will escalate faster than gasoline.

[cb5300]

That's because the oil companies are keeping the suppy low therefore forcing up the price. This is nothing more than price fixing, and the govt should step in and do whatever it takes to correct the problem. After all, the govt is so quick to step into everything else why not this??

[Ecker]

<BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">Originally posted by cb5300:
That's because the oil companies are keeping the suppy low therefore forcing up the price. This is nothing more than price fixing, and the govt should step in and do whatever it takes to correct the problem. After all, the govt is so quick to step into everything else why not this?? </div></BLOCKQUOTE>

I can't agree with that statement. I think its fairly clear that world supply is in line with world demand. In addition, the majors own very little of the supply. Oil producing (OPEC plus Russia, et al) states have taken over the control of the vast majority of the oil fields as well as a much larger proportion of the proceeds of higher oil prices. Thus, they have no incentive, with one exception, to pump more and drive down the price. The exception is that if they were to be threatened by a shift in usage or an opening of supply from US (which won't happen given political situation) they would reprice to either make the new supply uneconomical or at least meet it in the market.

[SeeTheUSA]

A couple of things to keep in mind while pondering diesel (and gasoline) prices-

1. Remember the interest we've (the US) had in the past in improving the economies of struggling countries - such as China and India? They've arrived!

2. Remember the benefits of a strong US dollar? Well, a weak US dollar yields the opposite!

So we now have many folks in the market for oil and our dollar is very weak. So sad. Party's over!

[RickO]

Interesting topic.

Leo, can you help me understand your point about world supply being in line with demand? It would seem that if that were the case the price wouldn't have doubled in such a very short time... unless of course it is just blatant price fixing.

[Tom N]

The chart below is self explanatory.

-Tom

[Source: Hefren-Tillotson Market Update]

[traveler of california]

Your evidence please.

These guys (oil companies) have been investigated more than any other business and no collusion or price fixing has been found. If you want to blame someone, blame those that will not allow us to drill and use our own resources or those that won't allow new refineries, or . . . .

Nick

[Tom N]

<BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">Originally posted by RickO:
Interesting topic.

Leo, can you help me understand your point about world supply being in line with demand? It would seem that if that were the case the price wouldn't have doubled in such a very short time... unless of course it is just blatant price fixing. </div></BLOCKQUOTE>

The price has ~doubled in US dollars. Since other currency has risen compared to US currency other countries oil has not increased as much as here in the good old USA.

You can thank the mortgage defaulters for much of the dollar/oil problem. I'll also included those that are upside down on their RV loan and have decided to default on those.

We all pay for those debt defaulters.

All IMHO.

-Tom

[cb5300]

The bottem line is that the refineries are not producing as much diesel as they could. Therefore if you don't produce it and the demand is high then the price will go up. There isn't anything to make the oil companies want to increase production, they're making their profits and that's all that's important.

Here's something else to keep in mind, a couple of weeks ago I read on the net that we shipped part of our surplus gas to another country, again that's defeating the supply and demand, a surplus helps keep our gas prices down, so what does the oil companies do??? Ship it overseas!

There's plenty of reading on the net talking about how this oil pricing is crazy. There is plenty of oil and it's all about greed.

[traveler of california]

As has been mentioned, this is not an issue of supply but more an issue of speculation and the falling dollar.

Nick

[Skipper 05MA]

This is purely an issue of market traders 'fixing' the price which has nothing to do with real suppply and demand but option trading. Watch MSNBC.

[Ecker]

<BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">Originally posted by cb5300:
The bottem line is that the refineries are not producing as much diesel as they could. Therefore if you don't produce it and the demand is high then the price will go up. There isn't anything to make the oil companies want to increase production, they're making their profits and that's all that's important.

Here's something else to keep in mind, a couple of weeks ago I read on the net that we shipped part of our surplus gas to another country, again that's defeating the supply and demand, a surplus helps keep our gas prices down, so what does the oil companies do??? Ship it overseas!

There's plenty of reading on the net talking about how this oil pricing is crazy. There is plenty of oil and it's all about greed. </div></BLOCKQUOTE>
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Refineries are running as good as can be expected. They are old and being run as full out as possible and some skimping on needed maintenance, which has arguably been the casue of some of the recent refinery fires. We are importing diesel. but it is not economical for company's to import at the LOW US prices vs Europe. Thus, they are only shipping their excess which is slowing decreasing because of the increase in diesel cars in Europe which will be brought to US over next 2 yrs so that in 2010 the demand from cars for diesel will increase dramatically which was the theme of the article I mentioned. In fact, Cummins new automotive diesel plant in Columbus IN in the old engine plant 1, which has been undergoing a major refurbishment, will come on stream in 2010 to support this change in auto production.

[Ecker]

<BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">Originally posted by Skipper 05MA:
This is purely an issue of market traders 'fixing' the price which has nothing to do with real suppply and demand but option trading. Watch MSNBC. </div></BLOCKQUOTE>
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Market traders base their trades on their assessment of supply vs demand. They don't create or eliminate it. They may or may not take physical delivery based upon the option but either way they make money or lose based upon the postion they take. You can do it too.