Diesel prices drop
According to the EIA (Energy Information Administration), US on-highway diesel fuel prices on Monday, May 25, were $2.914 per gallon. This represents an increase of 0.3% from the $2.904 per gallon on Monday, May 18. This week’s increase was lower than the ~1% increase in the May 18 week. The weekly increase was ~26% lower from year-ago levels.
The EIA calculates and releases national averages for diesel fuel prices every Monday.
An increase in diesel prices is positive for refiners such as Phillips 66 (PSX) and Marathon Petroleum (MPC), which produce diesel from crude oil. These two companies combined make up 2.6% of the iShares Global Energy ETF (IXC). Stronger diesel prices are also positive for refining MLPs such as Northern Tier Energy (NTI) and Calumet Specialty Products Partners (CLMT).
Diesel prices are impacted by distillate inventory levels, which in turn are determined by supply and demand trends. Read More Bullish News: Distillate Inventories Are Also Down to know more about last week’s trends.
Diesel price forecasts
According to the EIA’s Short-Term Energy Outlook (or STEO) released on May 12, diesel fuel retail prices will average $2.88 per gallon in 2015 and then rise to $3.12 per gallon in 2016. Diesel prices averaged $3.83 per gallon in 2014.
The EIA’s Annual Energy Outlook for 2015 (or AEO2015) released on April 14 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.”
So a sustained rise in diesel prices will negatively impact drivers and freight operations. This is negative for the economy (SPY).