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A Bullish Week for Crude Prices and Refined Product Prices

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Part 4
A Bullish Week for Crude Prices and Refined Product Prices PART 4 OF 4

Diesel Prices Up, Projected to Rise with Greater Consumption

Diesel prices

In the US, on-highway diesel fuel prices averaged $2.854 per gallon on Monday, May 4. This represents an increase of ~1.5% over last Monday’s $2.811 per gallon and a decline of 28% from the same time last year.

The EIA (U.S. Energy Information Administration) releases diesel fuel price updates every Monday. These prices are national averages calculated by the EIA.

Diesel Prices Up, Projected to Rise with Greater Consumption

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Higher diesel prices are positive for the margins of refiners such as Phillips 66 (PSX) and Marathon Petroleum (MPC). Combined, these companies make up 2.6% of the iShares Global Energy ETF (IXC). Refining MLPs such as Northern Tier Energy (NTI) and CVR Refining (CVRR) also benefit from more expensive diesel.

Diesel prices are influenced by distillate inventory levels, which in turn are determined by supply and demand trends. Read Distillate Inventories Flat in Week Ended April 24 for more on last week’s trends.

Diesel price forecasts

According to the EIA, diesel fuel retail prices will average $2.77 per gallon this summer, down from an average of $3.89 per gallon last summer. Like gasoline, diesel prices move with crude prices.

But, the EIA’s “Annual Energy Outlook for 2015,” or AEO2015, that was released on April 14, states, “the effect of rising crude oil prices on distillate fuel use in the United States is less than for motor gasoline, because of a greater increase in distillate fuel demand as freight requirements continue to grow and the mix of light-duty vehicle fuels shifts from gasoline to diesel fuel.”

Consumption forecast

The AEO2015 notes that increasing stringency in fuel-economy standards will result in greater consumption of diesel in the transportation sector. Gasoline consumption, meanwhile, will fall. The reference period used in the report spans 2013 to 2040.

The AEO2015 forecasts that in 2040, gasoline consumption in the transportation sector will be 21% lower than it was in 2013. In contrast, diesel fuel consumption will grow at an average rate of 0.8% per year between 2013 and 2040.

A shorter-term forecast was also provided by the EIA in its April 7 “Short-Term Energy Outlook.” The EIA expects US distillate consumption to average 4 million barrels per day this summer, up 3% compared to last summer. According to the EIA, this increase will be a result of higher manufacturing output and more foreign trade.

For the latest updates on the energy sector, read Market Realist’s Energy and Power page.

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