The Diesel Dilemma: Why It's Getting More Expensive
This post is from CNBC energy producer, Judy Gee.
Record crude oil prices and talks of $4 gasoline aside, there's a quieter, more subtle dilemma lurking in diesel.
Record pump values for diesel surfaced on February 21 and prices have hit daily records ever since. Gone are the days when diesel was cheaper than gasoline. Worried about $4 gasoline? We've already surpassed that mark for diesel. The national average is $4.025/gallon for regular unleaded diesel, which reflects a surge of nearly 60 cents since last month, and an increase of $1.28 above where prices were this time last year.
Today on CNBC's "Squawk Box", Shell Oil's John Hofmeister talked about the growing disconnect between gasoline and the middle of the barrel, where diesel is made. If we don't get more barrels of oil he said, then diesel "prices will stay much higher even though gasoline will come down."
Right now, it seems diesel can fuel inflation more than any other oil product. On a consumer level, somewhere along the line every product is delivered by truck or rail which consumes the fuel. This translates into higher delivery costs, transportation expenses, and also increases in the cost for almost every other item we buy in stores. It won't only be truckstops, fishermen and railroads that feel the impact of these records.
The good news, according to OPIS analyst Tom Kloza, is this may be it for a while. The bad news is he doesn't suspect diesel prices to retreat much in the next 45 days because of the low levels of refinery runs. Refining margins have really been hurt by a huge gasoline surplus and slack demand for retail gasoline. There is virtually no money to be made in manufacturing that motor fuel at the moment. Diesel is a different story. Refiners will keep making distillate fuel--diesel, jet fuel--as that is the more (and at the moment, perhaps only) profitable part of their business.
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