| NEW YORK
NEW YORK Feb 11 U.S. diesel prices are running
at an unusual premium to gasoline, a historically odd
relationship that may become the norm due to strong growth in
global demand for the fuel.
The shift may lead domestic oil refiners, which have tended
to focus heavily on producing gasoline to meet U.S. motorist
demand, to invest in units that can make exportable diesel for
the domestic and world market.
"I think the economics will draw refiners to higher levels
of diesel fuel production over time. The fact that the U.S.
imports gasoline and exports diesel is a good indicator that the
market is increasingly calling for more diesel and refiners will
have to make this investment," said Kevin Lindemar, an analyst
with Global Insight.
U.S. diesel prices have jumped 84.5 percent in a year to
$3.28 a gallon -- compared to the jump in gasoline prices of 78
percent to about $2.97 a gallon, according to the U.S. Energy
The surge in diesel prices follows a move by the U.S.
Environmental Protection Agency mandating a cleaner form of the
fuel which is more costly to produce and which is also more
readily exportable to the European market and other
"You do have areas of the world, like Europe, where the
passenger car fleet is heavily weighted to diesel," said Kevin
Lindemar, an analyst with Global Insight in Massachusetts.
Before the cleaner diesel mandate, much of the diesel
produced in the United States fell far short of European fuel
specifications, which meant the fuel tended to stay in the
United States, keeping stockpiles full and prices low.
U.S. distillate inventories, which include diesel, jet fuel
and heating oil, are running about 9 percent below last year's
levels, while stockpiles of gasoline have swelled to nearly a
14-year high, according to EIA figures.
GREEN DIESEL IN DEMAND
Despite an economic downturn in the United States that could
affect trucking and airline demand for diesel, experts said the
exportability of clean diesel keeps the outlook for demand for
the product rosy.
Trade sources report an increase in the number of ultra-low
sulfur cargoes loading to leave the United States.
"Exports to Europe and South America are pushing up the
price for 61-grade," said one trader, referring to the wholesale
trade name for ultra-low sulfur diesel.
Traders of cash oil products along the U.S. Gulf Coast's
refinery row said that an increasing number of cargoes of the
cleaner fuel are heading to Europe, where with blending it can
adhere to the 10 ppm specification in the United Kingdom,
Germany and Sweden, as well as to South America.
For example, at least six cargoes are booked this week,
sources report, adding that is an increase from the average of
one to two cargoes that are booked weekly to those
This increase in exports jives with world demand data
forecasts for diesel from the International Energy Agency.
According to projections made last year by the Paris-based
energy watchdog, OECD demand for diesel is expected to rise 22
percent between 2005 and 2012, a time period when much of the
world is consistently cutting back on sulfur content in diesel.
That compares to a projected increase in gasoline demand of
just under 3 percent over the same period, also made before the
global economy began slowing.
"From a demand perspective, the driving force is sulfur
policy relative to domestic diesel demand," said Lawrence Eagle,
head of market analysis for the IEA.
(Reporting by Janet McGurty; Editing by John Picinich)