June 22, 2008

The high cost of Diesel Fuel

Another excellent post from Kevin Baker at The Smallest Minority. This time, it is about the recent uptick of prices for diesel fuel:
More Unintended Consequences
Or were they really unintended?

Do you own a turbo-diesel pickup truck? Buy it on the understanding that you could get good performance and fairly decent mileage, and your fuel would cost less than gasoline? Do you own a diesel car for the same reasons?

Are you now pissed off that diesel costs more, significantly more, than gasoline? Have you been blaming it on Congress for passing "low sulfur" restrictions? Do you believe that it costs more at the pump because it costs more to refine?

You'd be wrong.
One reason why diesel fuel today is higher priced than gasoline is because of the unintended consequences of the 2007 EPA mandated ULSD (Ultra Low Sulfur Diesel) fuel - and not necessarily because it costs more to produce...

Everything changed in October of 2006, when the new U.S. ULSD regulations were implemented. Current U.S. ULSD is regulated to contain no more than 15-parts per million sulfur. In actual practice, U.S. ULSD contains just 7 or 8-ppm, which perhaps not coincidentally allows our ULSD to meet the somewhat stricter 10-ppm sulfur regulations in Europe. So, ULSD produced here in the United States has, for the first time, become acceptable for use in Europe. According to a 2/08 article in Reuters entitled "ANALYSIS-Exports keep U.S. diesel prices above gasoline", they reported that U.S. diesel fuel is currently being exported in quantity. The economics of "Supply & Demand" no longer apply to the U.S. diesel fuel market. American truckers could boycott diesel fuel, and it wouldn't necessarily produce lower diesel fuel prices.

According to a June 2008 article at MSN, entitled: Why is the U.S. exporting gasoline and diesel?, they report that U.S. oil companies were exporting more than 1.8 million barrels of crude oil, gasoline, diesel, jet fuel and other refined products per day. The top five buyers of U.S. petroleum products were Mexico, Canada, the Netherlands, Chile and Singapore. This article also indicated that Venezuela owns three CITGO refineries in the United States, and that about 30,000 barrels of refined products per day are being shipped back to Venezuela, where government-subsidized gas/diesel is currently being sold for a whopping $0.19 per gallon. If we weren't exporting diesel fuel, there would be more of a surplus, which could result in parity between gas and diesel fuel prices. What can we do? What should we do?
Hey, Maxine Waters and Maurice Hinchey, how about we "socialize" CITGO's refineries? I'm sure your good buddy Hugo Chavez wouldn't mind a bit!
What he said... Posted by DaveH at June 22, 2008 10:13 PM