WASHINGTON -- For the first time in six years, the national average retail price for diesel has dropped below that for regular gasoline.
According to the Energy Information Administration (EIA), the national diesel retail average fell below regular gasoline on July 13, after selling at an average 34-cent-per-gallon (CPG) premium to the national retail regular gasoline average since August 2009. This is after the premium had widened to more than 90 CPG as recently as January.
(Even though gasoline prices have recently followed crude oil prices downward, the high retail gas prices in California, which has been hit by a supply crunch, have pushed up the national average.)
Strong global demand, higher federal fuel taxes and higher production costs for ultra-low sulfur diesel, which was introduced to the fuel supply between 2006 and 2010, typically keep diesel priced at a premium to regular gasoline. But a few factors are flipping the price relationship, according to the EIA. For one, gasoline demand is at its summer peak, while diesel demand is strongest during the winter, since many of the same components that make up the fuel also are used in home heating oil.
And gasoline demand this year has been “unusually strong,” the EIA notes, beginning to grow in late 2014 and through the first half of 2015 both in the United States and abroad. In the first four months of 2015, Americans drove a record 987.8 billion miles, according to the Federal Highway Administration.
There is also a supply component to this price flip. According to The Wall Street Journal, many refineries, anticipating increased demand for diesel from developing countries, have been adding capacity to produce more middle distillates, which includes diesel, heating oil and jet fuel. They also have been rushing to meet this year’s jump in global gasoline demand. As they refine gasoline, these same facilities are producing diesel alongside it, further pushing supply past demand.
Indeed, the drop in diesel prices could mean that the global glut of oil is actually transforming into a glut of refined products. Growing inventories could weigh on oil and fuel prices into 2016, according to analysts and investors interviewed by the Journal.
EIA says the atypical diesel-gasoline price relationship will probably be only a “short-term phenomenon,” as seasonal demand swings take effect this winter. In its latest Short-Term Energy Outlook, EIA projected that diesel’s price premium to gasoline would grow later in 2015, expecting a national gasoline retail average of $2.27 per gallon for December 2015 versus a $2.87 average for diesel.
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