As diesel prices soared over $4 per gallon last week, the Department of Energy (DOE) is predicting that diesel prices will average even larger increases than gasoline in 2008.
Last weeks average price of all on-road diesel rang up at the pump at $4.059, an increase of $1.18 per gallon since the same time last year and 10.4 cents more than the week before. DOE is predicting the price will average about $3.62 per gallon in 2008, or 74 cents above the 2007 average price.
According to DOE, low sulfur diesel rang up at the pump last week at $3.987 per gallon, an 11 cents hike. Ultra low sulfur diesel was $4.069 per gallon, a 10 cents increase from the week before.
The department predicts that projected higher costs for crude oil will contribute to higher petroleum product prices through 2009, according to the department's short-term energy outlook.
As for the typical boost in summer consumption, DOE predicts distillate fuel, which includes both diesel fuel and heating oil, is projected to be at about the same level as last summer. Distillate fuel is supplied by three sources: domestic refinery output, primary inventories, and net imports.
Refinery production this summer is projected to be close to last summer’s average of 4.14 million barrels per day. Refinery production of distillate fuel both in the United States and in Europe may be constrained by what is expected to be a potentially weak gasoline market as consumers take the keys out of the ignition because of high prices. Without a growing outlet for gasoline, refiners may have to cut back on crude oil runs, resulting in lower distillate fuel output, DOE said.
Distillate inventories are projected to start the summer season at 109 million barrels. Although 11 million barrels less than last year, inventories are only slightly less than the five-year average. Consistent with seasonal patterns, distillate stocks are projected to rise to 132 million barrels at the end of third quarter, only two million barrels less than the year-earlier level. As a result, distillate stocks are projected to build at a daily average rate of 122,000 barrels per day over the summer compared to 76,000 barrels per day last summer.
Because of the demand for building inventories during the summer to meet next winter's heating fuel demand, net imports are projected to average 115,000 barrels per day, up from 55,000 barrels per day last summer. However, strong growth in world demand for distillate fuels and constrained supplies could limit the availability of imports and leave inventories lower than desired at the beginning of next winter.