Quote:
Originally Posted by arc
(Post 5796437)
This is bizarre. We are at $2.74 a gallon for gas but diesel is $2.69/gallon. Last year, when the gas prices were around $4, diesel was consistently a dollar a gallon higher. This is the first time in years that it's been lower than gas.
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Released on May 20, 2009
(Next Release on May 28, 2009)
Springtime Transitions
May is a time of transition as days get warmer, swimming pools open, and new graduates get ready to head out into the world. It is also a time of transition for U.S. fuel markets, as gasoline suppliers prepare for summer driving. This year, May has already brought back the traditional—but lapsed—spring transition in which the average price of regular gasoline in the United States rises above the price of diesel fuel.
U.S. Retail Gasoline and Diesel Fuel Prices
On May 11, the U.S. average retail price for regular gasoline reached $2.24 per gallon, surpassing the average diesel fuel price of $2.22. The crossing of the price paths for gasoline and diesel was once a regular rite of spring: gasoline prices rising for the high-demand summer driving season, while distillate fuel prices, including diesel and heating oil, falling from their highs in the cold of winter. This pattern had begun to break down in 2005, when diesel prices exceeded gasoline prices nearly the entire year (with the exception of a few weeks surrounding Hurricane Katrina). In 2006, gasoline and diesel prices remained essentially at parity for most of April through July, after which diesel commanded a notable premium. In 2007, the pattern returned, with gasoline rising strongly above diesel from late April to late July. Last year, diesel climbed to much higher levels than gasoline, despite gasoline breaking $4 per gallon. May 11 of this year marks the first time since July 23, 2007 that regular gasoline has cost more at the pump, on average, than diesel fuel.
Over the past few years, strong growth in distillate demand globally broke the traditional pattern of diesel and gasoline prices. Distillate demand growth over the last 5 years was boosted by two factors. A strong world economy put more upward pressure on distillate demand than on gasoline, and Europe’s policy-driven shift away from gasoline to distillate fuel in its light duty vehicles increased demand for diesel while reducing gasoline.
Shorter-term factors also affect the price relationship between gasoline and diesel. As the economy weakened, the current economic slowdown affected distillates more than gasoline, because distillate demand is largely made up of diesel fuel for trucks, trains, and ships to move goods and materials, while gasoline demand is used mainly in light duty personal cars and trucks. In fact, U.S. distillate demand fell by 6.1 percent in 2008, while gasoline dropped by 3.5 percent.
Diesel and gasoline prices have been converging throughout the first part of 2009. At the end of December 2008, gasoline prices bottomed at $1.61, the lowest price in nearly 5 years. By the first week in May, they had risen 47 cents to $2.08 per gallon. Crude oil prices explain some of this increase: between the end of 2008 and the first week in May, crude oil prices rose about $16 per barrel, or 38 cents per gallon. Since wholesale gasoline prices were near or even below the price of some crude oils at the end of 2008, gasoline prices were expected to increase more than crude oil prices.
More recently, gasoline price increases have been driven by the more traditional spring transition leading up to the Memorial Day weekend, the traditional start of the peak summer driving season. The average U.S. price for regular gasoline rose another 23 cents over the past two weeks, reaching $2.31 per gallon on May 18. Crude oil prices have contributed in some measure to this increase as well: from May 1 through May 15, crude prices increased $7 per barrel, or 18 cents per gallon.
Although crude oil prices are likely to remain a major influence over gasoline prices this summer, the seasonal increase in gasoline demand during the peak driving season, on top of potential underlying demand recovery, appears to be influencing the price at the pump. At the same time, strong supply availability from refiners now running at low utilizations in both Europe and the U.S. is likely to moderate gasoline price increases this summer. In any case, both gasoline and diesel fuel prices will likely stay well below their summer 2008 levels, making this year’s spring transition less dramatic than the last.
