Oil company price fixing

[brewer12345]

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.

 

[jazz4cash]

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.