Diesel prices forecast to set record in 2008

By Tom Stundza -- Purchasing, 3/12/2008 9:21:00 AM

With oil and gasoline prices again at new highs, diesel has followed the petroleum surge, ending yesterday at $3.82/gallon, based on government surveys of filling stations. Much as gasoline has pressured consumers, diesel is pressuring businesses that depend on the fuel for freight deliveries. The Energy Information Administration (EIA) projects that diesel prices will average $3.45/gallon in 2008, or 57¢ above the 2007 average price. The outlook suggests that diesel, like gasoline, will peak this spring—averaging close to $3.70/gallon for March and April—and then fall back as the year progresses.

The Wall Street Journal says today that U.S. diesel prices have jumped 16% in recent days because U.S. refineries that are set up mainly to produce gasoline have little flexibility to churn out more supplies of diesel. To increase capacity, refineries would have to invest heavily in new equipment, according to energy analysts. That’s because the U.S. will continue to have a hard time attracting barrels of diesel from abroad because of strong demand offshore.
Upshot: The diesel market in the U.S. will continue to be tight this year. So, some North American refiners are beginning to expand long-term capacity for diesel.

The International Energy Agency says in it latest forecast that high, $100-plus crude futures prices continue to chip away at oil consumption in the U.S. and other industrialized nations. But it also warned that brisk demand in China and other emerging markets would probably keep prices around their current level for some time.

Meanwhile, a Reuters News Service report quotes Chakib Khelil, president of the Organization of Petroleum Exporting Countries, as saying that speculation and political tension would keep oil prices at triple digits through the year, and some analysts are adjusting their forecasts higher. He says prices could retreat in 2009 with a recovery of the U.S. dollar following the election of a new U.S. president and as fundamentals reassert themselves. OPEC will next meet in September, although ministers could confer informally at a conference between consumers and producers in Rome on April 20-22.

Also see Diesel, oil prices continue record-setting trend

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