Diesel Demand May Be Driving Oil Price

(Bloomberg) — Soaring fuel prices are damaging the U.S. economy, and the government should be doing whatever it can to slow or stop their astonishing ascent.

Demand for diesel, according to energy economist Philip K. Verleger, may be driving much of the run-up in crude oil, which reached $145 per barrel on July 3. Truckers and other users of ultra-low-sulfur diesel fuel — the newly improved, cleaner version of the gasoline alternative — are being hit particularly hard by rising prices at the pump.

It’s becoming clear the U.S. should dip into its Strategic Petroleum Reserve for the light, low-sulfur crude that is most efficiently turned into diesel.

Demand for diesel is rising in both the U.S. and Europe, and its price has been shooting up much faster than that of gasoline. Over the past 12 months, the average price per gallon of all grades of gasoline rose $1.12, to $4.15. The price of diesel — which a year ago cost less than gasoline — increased by $1.81 a gallon, to $4.66, according to the U.S. Energy Information Administration.

Verleger said in an interview that operators of refineries are responding to the rapid increase in diesel prices by bidding more and more for light, low-sulfur crude. The U.S. could increase the available light-crude supply — and thus damp the surge in prices — by putting some of its reserve supply on the market.

Bloomberg