uploads///US On Highway Diesel Fuel Price

Rising Distillate Inventories Put Pressure on Diesel Prices


Jan. 12 2016, Updated 8:34 a.m. ET

Diesel prices

The EIA’s (U.S. Energy Information Administration) weekly gasoline and diesel fuel price update released on January 11, 2016. It showed that diesel prices averaged $2.17 per gallon. This represents a fall of ~1.5 % from the previous week’s price of $2.21 per gallon on January 4, 2016. The current diesel prices are about 40.2% lower than the same period last year.

Article continues below advertisement

Diesel prices by region

The average diesel price in the West Coast region was $2.42 per gallon. The Rocky Mountain, Midwest, and East Coast regions’ average diesel prices were $2.13 per gallon, $2.09 per gallon, and $2.22 per gallon, respectively. The Gulf Coast’s retail diesel price was $2.08 per gallon.

Mild weather and less consumer spending

Diesel prices are mainly impacted by heating oil demand, mild weather, individual spending, and refinery margins. Diesel prices fell more than 40% compared to same period last year. Long-term lower crude oil prices and mild weather conditions impacted the demand and supply. Refineries are operating at maximum operable capacities due to lower crude oil prices (USO). This resulted in huge distillate inventory builds. Huge inventory builds impact the prices.

Due to mild weather, the heating oil demand is weak. The same oil is used to produce diesel and heating oil. There’s less demand for heating oil. As a result, plenty of oil is available to produce diesel. Diesel prices are cheaper due to lower production costs. The recent interest rate hike also impacted diesel prices. Diesel is used in large trucks. The trucks are mainly used for transportation. Individual spending fell due to the interest rate hike. This has a negative impact on crude oil prices.

Distillate inventories rose by 6.3 MMbbls (million barrels) for the week ending January 1, 2016. The demand fell by 0.6 MMbpd (million barrels per day). This put pressure on heating oil prices. Diesel prices fell in the last week.

A fall in the diesel prices will reduce refineries’ margins. Refineries’ profitability will fall. Integrated refineries include ExxonMobil (XOM), Chevron (CVX), Western Refining (WNR), Holly Frontier (HFC), Alon USA Energy (ALJ), Marathon Petroleum (MPC), and Phillips 66 (PSX).

Together, ExxonMobil and Chevron account for ~30% of the Energy Select SPDR (XLE).


More From Market Realist

  • Open sign on a sidewalk
    Macroeconomic Analysis
    Top Reopening Stocks to Play the Shifting Market Sentiment
  • Morgan Stanley sign and stock numbers
    Macroeconomic Analysis
    Morgan Stanley's Buyback Stock Picks in 2021
  • Black Wall Street sign is sign of ethical investing
    Macroeconomic Analysis
    Ethical Investing Stocks and Funds for Your 2021 Portfolio
  • New York City skyline and Goldman Sachs logo
    Macroeconomic Analysis
    Goldman Sachs: Options Trade Picks to Play Earnings Season Volatility
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.