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Old 11-26-2008, 12:04 PM   #21
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One thing that still bugs me, and I have heard no good explaination, is why diesel fuel is still about $1.00 higher than gasoline It takes less refining and is thus cheaper to produce? It was about $1.00 less than gas about a year or so ago
Because people are willing to pay $1.00 more......... Cost is but one factor in pricing.


Diesel has been more expensive than gas here in Illinois for many years, not just the one year you mention.
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Old 11-26-2008, 03:10 PM   #22
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But a war that started in March 2003 really doesn't explain a tripling of oil prices from Jan 2007 to June 2008 any better than BRIC growth does. And considering that the war continues to this day, it doesn't explain the 4 month 66% decline from ~June to Oct/Nov.

But a single more simple explanation accounts for both . . .

BUBBLE!
I think prices came closer to doubling in that period... $2 to $4/gal

I agree... the war and replenishing the strategic oil reserves was only one factor... but it increased consumption... according to DOE.

The weak USD was likely a bigger contributor.

I agree with your Bubble statement also... prices were driven up on anticipation of future increases in demand (and price increase).
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Old 11-26-2008, 03:12 PM   #23
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I think prices came closer to doubling in that period... $2 to $4/gal
Was referring to crude going from $50 / bbl to $147.
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Old 11-26-2008, 03:32 PM   #24
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Was referring to crude going from $50 / bbl to $147.
Oops. My mistake.
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Old 11-26-2008, 03:51 PM   #25
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One thing that still bugs me, and I have heard no good explaination, is why diesel fuel is still about $1.00 higher than gasoline It takes less refining and is thus cheaper to produce? It was about $1.00 less than gas about a year or so ago
I agree...this is the $64k question and the explanations offered earlier don't quite fit.

Diesel is generally priced very close to (but generally less than) unleaded regular in areas where there are large numbers of over-the-road trucks. In urban areas where the customer base may be primarily passenger cars (VW/ Mercedes) and light trucks, it may be closer to unleaded premium.

This recent era of diesel priced well above unleaded premium IS NOT unprecedented, however. I recall clearly right before the 2004 election cycle, diesel was much more than unleaded. I remember because I had just turned in a diesel powered light truck which was my company car for awhile. In 2004 leading up to the election, there was a huge drop in fuel pricing. Last July I predicted the drop in fuel prices leading upto the current election, expecting 2008 would mirror 2004. This does not explain the inversion of unleaded and diesel, but I just don't believe diesel would be priced above unleaded unless there is some form of unnatural market force involved.
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Old 11-26-2008, 03:57 PM   #26
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One thing that still bugs me, and I have heard no good explaination, is why diesel fuel is still about $1.00 higher than gasoline It takes less refining and is thus cheaper to produce? It was about $1.00 less than gas about a year or so ago
As I understand it, refining works on 3:2:1, that is put in 3 barrels of crude and get 2 barrels of gasoline, 1 barrel of diesel and some heavier stuff (crud). You can monkey with this somewhat, but not by a big amount. So diesel and gasoline each have their separate markets, but they come out of the same process. You have higher seasonal demand for diesel because it is essentially the same thing as heating oil (and it has been unseasonally cold for November in the Northeast). Plus you have very low gasoline prices (vs. crude) which means that refiners have to have an awful lot of incentive (higher diesel prices) to crack more crude to meet diesel demand. I suppose that if diesel got way ahead of gasoline you could see biodiesel, DME and other stuff get produced in volume to meet demand, but it is kind of expensive to make.
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Old 11-26-2008, 04:21 PM   #27
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As I understand it, refining works on 3:2:1, that is put in 3 barrels of crude and get 2 barrels of gasoline, 1 barrel of diesel and some heavier stuff (crud). You can monkey with this somewhat, but not by a big amount. So diesel and gasoline each have their separate markets, but they come out of the same process. You have higher seasonal demand for diesel because it is essentially the same thing as heating oil (and it has been unseasonally cold for November in the Northeast). Plus you have very low gasoline prices (vs. crude) which means that refiners have to have an awful lot of incentive (higher diesel prices) to crack more crude to meet diesel demand. I suppose that if diesel got way ahead of gasoline you could see biodiesel, DME and other stuff get produced in volume to meet demand, but it is kind of expensive to make.
The 3:2:1 analysis largely misses the point that diesel has been less than or equal to unleaded forever except for these unusual excursions. It gets cold every winter causing competition between diesel fuel and heating oil just like the summer driving season increases gasoline demand May-Sept. My customers purchase diesel on contract and they reported spikes in diesel fuel pricing last April/May (at the end of the heating season) and it included both low sulpher and off-highway fuels. It is extraordinary and IMO suspicious. I expect going forward several months you will see diesel back down very close to unleaded regular.
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