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Diesel Prices Increased: EIA Provides Bullish Consumption Outlook

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Diesel prices

On Monday, April 20, US On-Highway Diesel Fuel Prices were $2.78 per gallon. This represented an increase of ~1% from $2.754 per gallon last Monday, April 13. It’s a decline of 70% from the levels 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.

An increase in diesel prices is positive for refiners’ margins like Tesoro (TSO). TSO accounts for 2.2% of the Energy Select Sector SPDR ETF (XLE). Increased diesel prices are also positive for refineries’ MLP (master limited partnership) subsidiaries that carry refined products. TSO’s MLP subsidiary is Tesoro Logistics (TLLP). Other MLP subsidiaries include Phillips 66 Partners (PSXP) and Shell Midstream Partners (SHLX).

Diesel prices are also impacted by distillate inventory levels—determined by supply and demand trends. Read Distillate Inventories Increased Last Week to learn more about last week’s trends.

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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 also move in the direction of crude prices.

The EIA’s AEO (Annual Energy Outlook) for 2015 was released on April 14. It states that “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 forecasts

The AEO for 2015 notes that increasing stringency in the fuel economy standards will result in an increase in diesel consumption in the transportation sector, while gasoline consumption will fall. The reference period used is 2013–2040. The AEO for 2015 forecasts that gasoline consumption in the transportation sector in 2040 will be 21% lower than in 2013. In contrast, diesel fuel consumption will grow at an average rate of 0.8% per year from 2013 to 2040.

A more short-term forecast was also provided by the EIA in the STEO (Short-Term Energy Outlook). This summer, the EIA expects US distillate consumption to average 4 MMbpd (million barrels per day)—up 3% compared to last summer. According to the EIA, the increase is a result of growth in manufacturing output and foreign trade.

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

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