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Is this an economic indicater?

 
 
roger
 
Reply Mon 3 Aug, 2015 11:02 pm
Lately, I've been noting some unusual pricing at the fuel pump. Diesel is selling at about a .20 per gallon below regular gasoline. It's normally almost a dollar higher. Think this could be an indication of sharply lower over the road trucking?
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Type: Question • Score: 6 • Views: 2,685 • Replies: 26
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puzzledperson
 
  1  
Reply Wed 30 Sep, 2015 03:21 pm
@roger,
" According to The Wall Street Journal, many refineries, anticipating increased demand for diesel from developing countries, have been adding capacity to produce more middle distillates, which includes diesel, heating oil and jet fuel. They also have been rushing to meet this year’s jump in global gasoline demand. As they refine gasoline, these same facilities are producing diesel alongside it, further pushing supply past demand."

That was in June. In April, the Journal of Commerce reported that:

" The growing strength of the U.S. dollar against foreign currencies, including the euro, is being blamed for some of that manufacturing decline, as U.S. goods become costlier overseas.

In February, the American Trucking Associations For-Hire Truck Tonnage Index dropped 3.1 percent from January and rose 3 percent year-over-year, its smallest annualized gain since June 2013. The March drop in trucking employment clearly follows that decline."

Maybe it's two economic indicators?

On the other hand, I'm not convinced that an increase in the supply of diesel destined for export to foreign markets would result in a domestic supply glut that would drive down U.S. diesel prices. Unless foreign demand evaporated.

0 Replies
 
Setanta
  Selected Answer
 
  2  
Reply Thu 1 Oct, 2015 03:46 am
Diesel fuel prices are artificial to begin with. Diesel can be refined from much lower grades of petroleum (and therefore cheaper petroleum), and the refining process is quicker and requires less energy input. Until several years ago, diesel fuel was about one third less per gallon than gasoline. These conditions still obtain in Europe (approximately), which accounts for the popularity of diesel-fueled vehicles there. I guess about a decade ago, the American energy industry realized that they were missing a great opportunity to gouge, and to gouge everyone through the same medium. Diesel fuel prices are indicators of nothing more that what the energy industry thinks the market will bear.
Ragman
 
  2  
Reply Thu 1 Oct, 2015 07:52 am
From an excerpted article from USA Today in Dec.2014
http://www.usatoday.com/story/money/cars/2014/12/29/diesel-fuel-gas-prices/20874327/


"The (diesel price differential) spread, which often is more like 30 or 40 cents a gallon during the year, underscores how despite the plummeting price of oil, gasoline and diesel don't always move in tandem.

"While we are very pleased with the drop in diesel, obviously it hasn't been as much as gasoline in percentage terms," says Bob Costello, chief economist for the American Trucking Association. There are number of factors at work, but Costello points in particular to how the U.S., now is one of the world's top energy producers, is exporting 1,000% more diesel than a decade ago.

"We export about half of what the trucking industry consumes in a year," he says.

Part of the reason for the wider price spread is seasonal. Diesel fuel is a distillate that competes with home heating oil in winter. Plus, the energized economy has meant the transportation industry is burning more fuel moving goods to market. Even though posted prices are high, large transportation companies, like truckers, receive significant bulk discounts that means they are paying less than posted prices.

"It's actually much cheaper than you'd think," says Tom Kloza, global head of energy analysis for the Oil Price Information Service."
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puzzledperson
 
  0  
Reply Thu 1 Oct, 2015 12:30 pm
@Setanta,
Diesel can be refined more cheaply, but:

" Ultra-low-sulfur diesel (ULSD) is a standard for defining diesel fuel with substantially lowered sulfur contents. As of 2006, almost all of the petroleum-based diesel fuel available in UK, Europe and North America is of a ULSD type.." (Wiki)

Dirty oil plus laborious refining to remove sulfur does not equal cheaper cost. Neither does gasoline grade petroleum plus less laborious refining. In the first instance the petroleum is cheaper but the refining is more expensive; in the second case the input is already as expensive as for gasoline.

Add to this a higher tax in the U.S. for diesel per gallon, and soon the price variance that can be attributed to sheer gouging (relative to gasoline) is much less.

Saudi Arabia has a new diesel refinery and is currently exporting vast amounts of it to Europe, I believe, with a resulting glut.

0 Replies
 
Setanta
 
  0  
Reply Thu 1 Oct, 2015 02:09 pm
You haven't (apparently) been paying attention for the last thirty or forty years. Diesel has been much, much cheaper over that period, until the last ten years or so. The American energy industry has not been building new refineries since the 1973 oil embargo, citing the cost (as though they're hurting for cash). They have been unwilling to give refinery time to produce a fuel for which they have traditionally charged less money. Not all low grade petroleum in necessarily high-sulfur petroleum.

What are you, a shill for the American energy industry?
puzzledperson
 
  1  
Reply Thu 1 Oct, 2015 02:57 pm
@Setanta,
The last ten years or so corresponds precisely to the period since ultra-low sulfur diesel has been mandated by governments in America and most of western Europe. That makes refining more expensive. Also, American refineries have been increasing diesel production for export. Both of these facts were explicitly made clear to you above. It isn't my fault you have low reading comprehension skills.

I have no connection to the petroleum industry and don't even own stock in it.
0 Replies
 
puzzledperson
 
  1  
Reply Thu 1 Oct, 2015 03:16 pm
@Setanta,
P.S. " ULSD has a lower energy content due to the heavy processing required to remove large amounts of sulfur from oil, leading to (1 to 2%) lower fuel economy. Using it requires more costly oil." (Wiki)

The citation comes from this link:

http://m.waste360.com/mag/waste_truck_engine_emissions

Here's another relevant quote:

" Not only is ULSD fuel more expensive — anywhere from 5 to 50 cents more per gallon according to early EPA estimates — contamination and reduced fuel economy also will be major issues."
Setanta
 
  2  
Reply Fri 2 Oct, 2015 01:29 am
@puzzledperson,
When gasoline prices hit almost $4.00/gallon in 2008, 50 cents a gallon would not account for the 50% increase in diesel fuel prices. Even now, with gasoline prices ranging from about $2.10 to $2.70 (Ohio), that 50 cent increase in diesel fuel prices does not account for the rise in diesel fuel prices from around 2/3 of gasoline prices. In far too many places in Ohio, diesel fuel costs just what gasoline costs. Your references to high sulfur petroleum, once again, do not account for this price increase. That is without considering the low end estimate (i'm using your quote) of an increase of only five cents per gallon. Your math does not justify an increase of 40% to 50% in diesel fuel costs.

Corporations profiting from oil refining and the retail sales of refined petroleum products have simply decided to gouge everyone (absolutely everyone in the United States, where the railroads are largely moribund and retail goods are distributed by over-the-road transports) by bringing the price of diesel up to the same levels as the price of gasoline.
puzzledperson
 
  0  
Reply Fri 2 Oct, 2015 03:17 am
@Setanta,
We're discussing the price spread between diesel and gasoline to decide whether the shift to ultra low sulfur diesel (as mandated by American and many European governments) explains the price inversion (i.e. diesel going from less expensive than gasoline to more expensive).

In 1994 the price of diesel was roughly a dollar a gallon while that of gasoline was about $1.15 (these are all U.S. averages). In 2002 diesel was still about a dollar and gasoline averaged $1.35. By November 2007 the average price of diesel was $3.30 and that of gasoline $3.01.

From this we note three things:

(1) Diesel became more expensive than gasoline only after the EPA mandated switch to more expensive ultra low sulfur diesel.

(2) The price differential is 29 cents, which is less than the 50 cent maximum estimated by the EPA prior to the mandated switch.

(3) Both diesel and gasoline have undergone dramatic price inflation.

The price inversion of diesel and gasoline is indeed consistent with the switch to ultra low sulfur diesel, since the price spread between diesel and gasoline is within the predicted range.

Diesel's absolute price had increased by more than 50 cents but that is irrelevant because so had the price of gasoline; and 50 cents is the predicted maximum spread between the two at the time of the mandated switch, not a limit on general price appreciation.

The explanation for the inflation and price volatility of petroleum products (be they diesel or gasoline) is clearly speculation on oil futures, in my opinion; but that is another discussion altogether.

The recent (2015) re-inversion (or parity) of diesel and gasoline prices was the subject of the original question (and my initial answer). The suggestion that diesel prices reflect what the market will bear is reasonable; the question is what factors account for the recent shift: a decrease in domestic demand in the trucking industry, an increase in domestic diesel production, or both.
Setanta
 
  2  
Reply Fri 2 Oct, 2015 03:20 am
@puzzledperson,
No, that's what you want to discuss, i'm not convinced. You think your way, and i'll think mine.
Setanta
 
  2  
Reply Fri 2 Oct, 2015 03:46 am
By the way, i don't know where you get your alleged U.S. average fuel costs. In 1994, i was paying well under a dollar a gallon for gasoline, and diesel was running 60 to 65 cents a gallon. I was a business manager for a small business that had a few trucks for our employees, and i had to keep track of their fuel costs, and we provided fuel cards for them, having chosen a vendor which was the most economical in the eastern United States. Nowhere in that region in 1994 did we see fuel prices of more than a dollar a gallon for gasoline or more than 70 cents a gallon for diesel. Our employees made service calls to businesses in all the nearby states, and as far west as Texas and as far south a Georgia. Not only are there regional differences in fuel costs, they vary from state to state, and are clearly based on what the market will bear. As is required by law, the state excise on gasoline is posted on the fuel pump. Fuel prices in Ohio were consistently lower than those in Michigan, despite the fact that Ohio's gasoline excise was ten cents a gallon more than in Michigan. In the eastern United States, our employees consistently paid the lowest prices in Tennessee, which is not a petroleum producing state,.

Yeah, i'm sure you want to talk about low sulfur fuels, you've nailed you flag to the flagpole on that one. I remain unconvinced.
puzzledperson
 
  0  
Reply Fri 2 Oct, 2015 04:04 am
@Setanta,
Some additional points:

(1) American rail isn't "moribund", it's resurgent:

http://www.forbes.com/sites/joannmuller/2014/01/22/americas-second-rail-boom/

(2) Europe may soon shift from diesel to petrol (gasoline) because new government anti-pollution mandates make diesel costly by comparison:

http://cleantechnica.com/2013/10/16/diesel-cars-finally-given-axe-europe/

0 Replies
 
Setanta
 
  2  
Reply Fri 2 Oct, 2015 04:16 am
An additional point, from your Forbes article:

Quote:
The industry, so recently an aging also-ran in the age of superhighways, is now a fountain of superlative figures: Industrywide, revenues have surged 19% from $67.7 billion to $80.6 billion since 2009, creating 10,000 new jobs at railroad companies and countless thousands in related industries–and paying out $21 billion in wages last year alone, up nearly $1 billion. As the U.S. population swells, the Federal Railroad Administration projects that the tonnage of freight shipped by the U.S. rail system will increase 22% by 2035.


Note that your "resurgent" rail sector was, as the author points out "an aging also-ran" in the time period under discusion.

An additional point: the ultra low sulfur diesel you've been yammering about was not mandated until the 2007 model year. The steep rise in diesel fuels costs began in about 2000.

You really are a one trick pony here.
puzzledperson
 
  0  
Reply Fri 2 Oct, 2015 04:21 am
@Setanta,
U.S. diesel price per gallon:

https://www.tititudorancea.com/lib/fx/oil_diesel_alldata566.png

U.S. gasoline prices for selected years:

http://static.nationwide.com/static/gas-prices-infographic.jpg?r=49

Note that gas prices were fairly stable from 1992 to 1997, so extrapolation was warranted. If you want the specific average gasoline price for 1994 it's $1.11 which is remarkably close to my extrapolation of $1.15:

http://www.1990sflashback.com/1994/economy.asp

These averages are easily verified through numerous independent websites. What you claim to remember for Ohio is irrelevant to the national annual average.
0 Replies
 
puzzledperson
 
  0  
Reply Fri 2 Oct, 2015 04:42 am
@Setanta,
The steep rise in the price of petroleum (and derivatives such as diesel AND gasoline) began earlier in the decade of the 2000s; but diesel didn't go from less expensive than gasoline to more expensive than gasoline until after the EPA mandated switch to ultra low sulfur diesel, as I've already documented. Why do you keep attempting to confuse the issue by conflating the general price rise of petroleum products (which includes but isn't limited to diesel) with the timing of the diesel/gasoline price inversion?

No doubt the increase in trucking costs caused by the general inflation of the price of oil and its derivatives encouraged the resurgence of rail.
Setanta
 
  2  
Reply Fri 2 Oct, 2015 04:57 am
@puzzledperson,
puzzledperson wrote:
No doubt the increase in trucking costs caused by the general inflation of the price of oil and its derivatives encouraged the resurgence of rail.

Man, laughed my ass off--yeah, Sherlock, no doubt.

The author of the Forbes article, by the way, makes wild claims about the amount of diesel fuel needed to haul a long train. Either she doesn't know how trains work, or she's willfully playing fast and loose with her story. But then, Forbes always has been about business boosterism and encouraging investment.

***********************************

First, you've got a straw man at work there. I didn't say that diesel went from less expensive to more expensive than gasoline in any time frame at all. Beginning in the 1990s and continuing into the first decade of this century, i was responsible for tracking fuel costs on the very pragmatic basis of getting the most from our company vehicles for the least expenditure. The price of diesel fuel began to rise, and to approach that of gasoline after 1998. It was, in fact, a topic of frequent discussion in cafes and restaurants among those whom the price rise affected. By the middle of the first decade of this century, it was approaching the price of gasoline. I made no claim with regard to when, in some states, diesel fuel equaled or surpassed that of gasoline. The cost of diesel fuel began a steep rise in 1999 and thereafter, without reference to low sulfur standards. Your argument in obsessed with that one factor, and you don't seem to know much about the history of this phenomenon. The country boys would say "That dog only knows one trick."
puzzledperson
 
  0  
Reply Sat 3 Oct, 2015 01:58 am
@Setanta,
Setanta wrote: " The price of diesel fuel began to rise, and to approach that of gasoline after 1998."

The first part of this sentence is irrelevant since the price of gasoline also began to rise at this time.

You might have a point if the second part were true, but it isn't. As I pointed out above, in 1994 gasoline was about 15 cents more expensive than diesel; by 2002 gasoline was about 35 cents more expensive than diesel. It wasn't until the switch to ultra low sulfur diesel that diesel became more expensive than gasoline.


Setanta
 
  1  
Reply Sat 3 Oct, 2015 02:13 am
@puzzledperson,
You stated that the price of gasoline was 15 cents more than diesel, you didn't point it out. Upon what authority should i consider your statements to be true, just because you state them. The point i've made, based on my experience tracking gasoline and diesel prices in the late 1990s and in the first decade of this century is that the price of diesel rose more steeply than that of gasoline. I also disputed the prices you quoted as national averages, and pointed to regional and state differences in prices--something you have not addressed.

Once again, you stating something does not make it a fact, any more than my stating something makes it a fact. It's all "he said, she said" at that point.
puzzledperson
 
  0  
Reply Sat 3 Oct, 2015 02:59 am
@Setanta,
I gave you links citing petroleum price data from the U.S. Energy Information Administration (EIA). I consider this a more reliable source for national pump-price averages than your supposed memory of Ohio from 15 years ago.

You can easily verify this by going to the EIA website and performing your own research. They make data series available by year, month, and week. Many of the data series are in PDF or Excel formats.
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