Diesel price boost (now over $5) means you'll pay more at the pump and the market

[Newsjock]

Source: San Jose Mercury News

Need diesel to run your car or truck? Shed some tears, some really big tears. The pain will be felt by motorists and consumers alike.

Prices jumped as much as 16 cents in the South Bay on Friday, punching through the $5 a gallon mark at a growing number of stations. It was $5.29 at a 76 station on El Camino Real in Santa Clara, $5.25 at a Shell station on Hamilton Avenue west of Highway 17 in Campbell or $5.19 at Valero on Tully Road in East San Jose.

That's no typo - $5.29 a gallon. The statewide average of $4.97 for diesel is expected to be shattered every day for the next couple of weeks. That's up from $1.82 a year ago.

Even Rotten Robbie stations, which usually have the lowest prices around, were selling diesel for $5.03 a gallon.

Read more: http://www.mercurynews.com/breakingnews/ci_9362785

[SpiralHawk]

1. What's rotten is republiconomics

eom

[BB1]

2. Over 5.00 per gallon?

But isn't diesel usually cheaper than gas? At least here it is (here is N.W. Europe)...

[jimshoes]

3. Over here it's supply and demand

The oil companies control the supply and demand whatever the f*ck they want.

[jmowreader]

10. Here's the problem...

First, the dollar is no longer the only currency oil can be traded in, and it's going to shit on the world currency market. Iran will take any major currency EXCEPT the dollar for its oil; expect other oil producers to follow suit.

Second, the countries that DO take dollars for oil are pissed at the US right now...the Arabian Gulf countries over the war, and Venezuela because Bush has the ass for President For Life Hugo Chavez. They're like Sal in Robocop: they don't give a shit what you want to pay, they set the prices.

And third, the part of crude oil that can be made into diesel can also be made into heating oil, jet fuel or military JP-8 fuel.

You've got oil producers who don't give a shit what you want to pay--and who don't mind taking out their frustrations against Fearless Leader by raising the price of oil--alongside a war that uses millions of gallons of fuel a week. No wonder the price of diesel has gotten stupid.

[DeeDeeNY]

4. And yet, Republican voters care more about gay marriage and flag pins

[tanyev]

9. That is an excellent graphic.

[atomic-fly]

5. Don't forget heating oil

We use heating oil. I just signed up for a new heat pump installation, because I feel it will pay for itself this
winter with the cost of fuel.

[JBear]

6. Don't forget the war...

Diesel is the fuel of war. We are shipping a bunch of it back to the middle east after shipping it over here and refining it.

The conspiracy theorist in me also thinks that it is a push to keep the new diesel cars from being viable over in the US. Remember, VW, BMW and Mercedes are all launching new diesel cars in the US this year. They have to keep the thirst going.

Even at 45 MPG, I am having to cut back severely on driving with these prices. Thank goodness I don't have an SUV!

:bounce:

[Purveyor]

7. The demise of the independent trucker is near and the corporate shipping

companies are reeping the benefits.

I read where there are acres upon acres of repo'd trucks that have been abandoned, sometimes left at the point they ran out of fuel.

[Hatfield]

8. I'm sick of this bullshit

I thought I was making the right decision in purchasing a 2005 Jeep Liberty with a 4 cylinder diesel engine 3 years ago. This was when diesel was still about 30 cents cheaper then regular unleaded. I get decent gas mileage, about 23 in the city, 27 on the highway, give or take a mile or two. I still have plans to run on bio, but sadly, I'm fairly ignorant of the components of my engine. I have yet to find a reputable diesel mechanic that can give me a rundown of my engine. Until I do this, I will continue paying the $4.50 a gallon that it costs me in LA (Lower Alabama) as I imagine its still cheaper then running on bio and screwing up my engine. The only mechanics I have found to work on my car are at the dealership and one of them had to take a 3 week class to be certified to work on it. I'm sure a reputable diesel mechanic with knowledge of my engine exists, but I've yet to find one here.

At 29 years old, I decided to go back to school last year and finish my degree, so to say I'm on a limited budget would be an understatement. My folks live 35 miles away from me, even to visit them it costs me almost $15 round trip.

I realize the hardships the gas prices have had upon me, but I feel for those who are truly struggling, the owner operators of semi rigs who are having to park their trucks because it costs more for gas then what they are getting paid for their haul. I hate to say it, but its gonna get alot worse before it gets better.

[Lance_Boyle]

13. yo ucan run biodiesel (up to B100) with no mods.

Older (read: "ancient") diesels need fuel line replacement, but your '05 liberty doesn't.

Unfortunately, you'll probably find commercial biodiesel more expensive than dino-diesel - they have to keep the prices above petro-diesel prices, or bio-supply goes away too fast. If you can homebrew (assuming you have a sufficient used grease source), you can make biodiesel for under $1/gallon (discounting your labor costs). The methanol is the expensive part.

[jmowreader]

11. I've seen an instance of this

This stands out in my mind because I recognize the truck--it belongs to an independent trucker that hauled my chainlink fencing when I still worked at Home Depot and it was real recognizable when I saw it because (1) it was an unusual color--kind of a metallic teal with purple accents and (2) it was loaded with fencing. This truck sat at the northbound weigh station on I-95 around mile 26 for about a week until someone came out and got it. Apparently the guy weighed through, pulled over, shut down and called someone to get him...and there the truck sat until someone, probably from the finance company, came out to pick it up.

I don't know how corporate shipping companies can really be "reaping the benefits" of this debacle--I'm fairly sure the oil companies have declared force majeure on diesel due to outrageous crude prices. Force majeure suspends the declarer's obligation to fulfill its end of any contracts signed before its declaration.

[high density]

12. $1.82 -> $5.00 in a year

This is crazy. We are lucky though in the fact that this is an election year, and the oil companies will do everything to drop the cost of diesel and gas once we pass Labor Day. Until then it's to the moon with the prices.

[CatholicEdHead]

14. Not quite over $5/gal for diesel here

But around $4.50 to $4.75 is not much better.

[davsand]

15. So, where, exactly, are the Teamsters in all of this?

I honestly don't know, and if they have tried to organize and failed, please correct me.

My Dad (he passed away in March) swore that he thought the Teamsters had been given some sort of "deal" not to get pissy about the rising fuel costs. At the time, I kind of patted him on the head and passed it off, but I have to say, I'm starting to get a little uneasy with this.

The Indy truckers can't afford to run, but if you notice there are still a lot of trucks out there on the highways. HOW are they still running with the fuel cost? IF the truckers wanted to make a point you'd think that they could call a two or three day truck stoppage and shut this entire system down. Seems like maybe THAT would get attention in DC (You'd think it would, anyway...)

:shrug:

I'm maybe kind of biased because I grew up on a farm where we bought diesel in bulk with a discount, but I am wondering now if maybe my poor old Dad was right.



Laura

[happyslug]

16. Problem starts with the higher tax rate for Diesel, but a bigger problem is what is being made.

Many states tax Diesel at a higher rate than Gasoline:
http://www.iowa.gov/tax/taxlaw/USmapGasSalesCig.pdf
http://www.washingtondcgasprices.com/tax_info.aspx

I ran across a recent article that said most refineries had increased their ability to produced Gasoline, but had kept their ability to produce Diesel/Kerosene/Jet Fuel/Home Heating oil the same. Here are some other article talking about increasing Diesel production over the last month or so:
http://www.mysanantonio.com/business/stories/MYSA051408_1D_hendricks051408.2d6fce3.html
http://www.marketwatch.com/news/story/diesel-prices-full-throttle-push/story.aspx?guid=%7BA9A6465F-F30F-4466-91C7-ABFD1FCB57DE%7D&print=true&dist=printTop

Articles on light and medium crudes and why this is affecting Diesel fuel production right now:
http://memrieconomicblog.org/bin/content.cgi?article=185

Now the first product produced from oil is what we Americans call "Kerosene" (Called Paraffin in the UK). This was the main use of oil till about 1900. Gasoline was a by-product. As electric lights replaced kerosene Lamps, the use of Kerosene dropped in the US, but Cars started to use Gasoline and with the widespread adoption of the Automobile, Gasoline became the main product and Kerosene a by-product.

Now, in addition to Kerosene, other by-products were and are produced when you refine a barrel of Crude oil. These are numbers 1-6. Kerosene is Generally #1 Fuel oil, Diesel is #2 (as is Home Heating Oil). Numbers 3-6 are low grade oil generally used as "Bunker Fuels" in ships, barges and sometime even "Diesel" Trains. . Technically Diesel and Home Heating Oil do have to meet different Specifications, but these are so close that the main difference between Diesel and Home Hearing oil is the tax rate. Jet Fuel is generally Kerosene, but called Jet Fuel instead of Kerosene (Again for mostly tax purposes).

As a general rule #1 and #2 are interchangeable, but #2 is preferred for Diesel use to be it, generally, have a higher "oiling" capacity then #1. #1 is generally used in Cold Weather for Diesels do to its better ability to stay liquid at temperatures below freezing.

While a Barrel of Crude oil has 42 US gallons in it, the "average" barrel of Crude produced 44 gallons of product (Some products take up more space refined then it did as Crude thus the difference). The Average barrel of oil also produces only 19 gallons of Gasoline, but this is the "Average" and can be increased or decreased depending on what is wanted at the time the oil is refined. You will NOT get 44 Gallons of Gasoline out of a barrel of Oil, but you can increase the amount to well over the average of 19 gallons if needed. The same can be done with Distillate, production can increase or decrease if needed, but no matter what you do you will get some Gasoline if you only want Distillate (And you will get some Distillate, if all you want is gasoline).

What seems to be happening is the Oil Companies increased Gasoline production capacity, but ignored Distillate Capacity (It went up, but as a by-product of the increased Gasoline Production then any plan to increase Distillate production). Various reasons have been suggested, that it was to meet the US Gasoline Demand, it as to address third world gasoline demand, it was a side product of the rapid decline in the production of "Light" crude and its replacement with "Medium" and even "Heavy" Crude oil (Sweet, Medium and Sour Reflects the amount of Sulfur in the oil, Light, Medium and Heavy reflect the density of the oil, the Lighter the better).

Please note I am using "Distillate" to mean all the Distillate Fuels, #1- #6, i.e Kerosene/Jet Fuel, Diesel #2/Home Heating oil and the bunker fuels (#3-6).

Sweet Crude Oil:
http://en.wikipedia.org/wiki/Sweet_crude_oil

Sour Crude Oil:
http://en.wikipedia.org/wiki/Sour_crude_oil

More on oil:
http://en.wikipedia.org/wiki/Petroleum

Now, it looks like the Oil Companies expected a shortage of gasoline, so increased their ability to produce gasoline, AND expected any increase in gasoline production would also increase Distillate production. Europe and Asia wants more Diesel. The North American Home Hearing season came late (Did not really get Cold till after Christmas) but was long and cold, which used up a lot of #2 oil, which come spring would have been sold as Diesel not home hearing oil.

One of the factors driving this is that today 40% of all cars in Europe use Diesel. 90% of US cars use Gasoline. Thus my comments about Europe and Asia wanting Diesel not Gasoline.

I can see this being a one two punch on the oil companies, the first is their increased Gasoline production do to the decline in their access to "Light" Crude, but then was hit by an increase in demand for Diesel in Europe do to the fact Diesel Vehicles get better fuel economies then Gasoline Vehicles. With the Home heating Season ending late this year, the oil companies ended up with a shortage of Diesel, while they have plenty of Gasoline (Through the price of either is being driven upward by Peak Oil).

Now this may lead to a drop in price by the end of Summer. Speculators could be buying Diesel futures and driving up the price. As the oil companies switch their plants to make more Diesel, we may end up with a surplus of Diesel by Mid-Summer (while Gasoline stays about the same). This will lead to a drop in the price of Diesel by the middle of Summer. This may extend to Gasoline, but the drop in price will be temporary for the fundamentals are sound, peak oil is hitting us NOW. I can see the price of Diesel dropping to about the price of Gasoline. I can see a slight drop in Gasoline, but after Diesel price stabilize, I see both then going back up, but in a more unison fashion then they have been.

Thus the recent talk of Speculators gaming the market, may be that speculators are seeing the problem being Diesel and buying Diesel fuel today expecting it to go up (and it has). AS Krugman said last week, there is NOT reports of excessive storage of any type of oil. If that is the case we do have a real shortage and the Speculators are just the first to see it and exploiting one part of it. Thus my comment that I see the price of Diesel dropping, maybe taking Gasoline with it for a few weeks (or months) but the fundamentals are sound, and the bottom will be found quickly and the price rise will re-start. Rascally come this fall when US home hearing fuel comes back into demand in anticipation of Winter.

More on "Fuel Oil":
http://en.wikipedia.org/wiki/Fuel_oil
http://science.howstuffworks.com/oil-refining2.htm