Retail diesel prices surge to record high

by Ron Sterk
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KANSAS CITY — The U.S. average retail diesel fuel price was a record high $3.552 a gallon as of Feb. 25, the U.S. Energy Information Administration (E.I.A.) said.

Brad Samples, commodity analyst with Summit Energy, Louisville, Ky., said the high prices are the result of record high crude oil futures prices, strong demand for heating oil due to colder than normal winter temperatures in the United States and Europe and strong export demand, both from Europe and emerging economies.

The latest average, up 15.6c from a week earlier, surpassed the previous record high of $3.444 set Nov. 30, 2007, and was nearly 40c above the post-Hurricane Katrina high of $3.157 set Oct. 28, 2005, according to E.I.A. data. The latest price was $1.001 above the year-ago average of $2.551 a gallon.

Since the previous high, prices bottomed at $3.259 a gallon on Feb. 1. But crude oil prices have climbed steadily since then, with the New York Mercantile Exchange continuous futures contract closing at a record high $100.88 a barrel on Feb. 26, up from $88.96 on Feb. 1 and a recent low of $86.99 on Feb. 23. A year ago crude oil futures were hovering around $60 a barrel in New York.

High crude oil prices were "financial" in nature rather than demand driven, Mr. Samples said. Actual demand was softening because of recessionary influences, he said.

Last week the E.I.A. reported crude oil inventories at 308.5 million barrels as of Feb. 22, up 3.2 million for the week and up for the seventh consecutive week. Gasoline stocks were at 232.6 million barrels, up for the 16th consecutive week and the largest since Feb. 4, 1994. But distillate inventories, which include heating oil and diesel fuel, declined 2.5 million barrels, to 120 million, after dropping 4.5 million a week earlier.

"Distillate stocks are incredibly low," Mr. Samples said, especially noting tight supplies for heating oil in Europe. Adding to the tight supply situation was reduced refinery output of distillates due to weak margins at the start of the year and a number of refinery outages, he said.

"I wouldn’t expect to see a great deal of weakness in diesel prices in the next two to three weeks," Mr. Samples said. "The main potential for easing in the entire crude complex will be later in the second quarter."

Diesel prices will ease in the second quarter as heating oil demand drops, refinery production increases due to improved margins and the weak economy pressures demand in general, Mr. Samples predicted. But he noted demand for diesel fuel from the agricultural sector, which had good profits in 2007, will increase seasonally with spring planting.

In its latest short-term energy outlook, the E.I.A. forecast retail diesel prices would average $3.21 a gallon in 2008, up from $2.88 in 2007, and forecast a decline to $3.08 in 2009.

Mr. Samples said he expects diesel prices to average about 15c below the E.I.A. forecast for 2008 because of the weak U.S. economy.

"Diesel is highly responsive to the economy," he said.

The U.S. diesel price compiled by the Department of Energy’s E.I.A. is an average of on-highway prices in five regions and three sub-regions. The highest average price as of Feb. 25 was in the New England sub-region at $3.710 a gallon, and the lowest average was in the Rocky Mountain region at $3.473.

This article can also be found in the digital edition of Food Business News, March 4, 2008, starting on Page 20. Click here to search that archive.

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