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Diesel demand, prices go into overdrive

Sam Eaton May 16, 2008
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Diesel demand, prices go into overdrive

Sam Eaton May 16, 2008
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KAI RYSSDAL: Demand for gas is dropping, as Jeremy pointed out. At least in this country. Diesel’s a different thing entirely. Worldwide demand for what’s called a middle distillate is up. And prices have risen nearly three times as fast for regular gas. They’re up almost 60 percent in the past 12 months. Refiners know a profit center when they see it. And they are going all out to boost diesel production. From the Marketplace Sustainability Desk, Sam Eaton reports.


SAM EATON: With its isolated pump and dirty green handle, diesel may still be the second class fuel of U.S. gas stations. But for the oil refiners that make it, it’s the nouveau riche. Barbara Shook with the Energy Intelligence Group says the reason is simple.

BARBARA SHOOK: It’s Economics 101. Supply and demand. Demand is rising, supply is limited, so the price rises.

And that demand doesn’t look like it’s going to slow anytime soon. Severin Borenstein directs U.C. Berkeley’s Energy Institute. He says there are some simple reasons for diesel’s growing popularity.

Severin Borenstein: It gets about 30 percent better mileage per gallon than gasoline does. And so from a climate standpoint it’s much more attractive and from a cost standpoint it’s much more attractive.

Attractive for both consumers and refiners, who make more money for every gallon of diesel they sell. The problem is they’re set up to make mostly gas. And that makes it tough for them to cash in on diesel’s fat profit margins. Borenstein says U.S. refineries can boost diesel production by a few percent.

BORENSTEIN: But that’s it. Once they start to try to make bigger shifts than that it requires very substantial changes in the refining process and significant investment.

Borenstein says that’s exactly what we’re likely to see. But he says the U.S. is late to the game in what has become a global tilt toward diesel as the fuel of choice. In the short term the emphasis on making more diesel may push gas prices up slightly. But in the long term, as the refineries catch up and as more diesel cars become available, Borenstein says consumers will be the ones saving money.

I’m Sam Eaton for Marketplace.

RYSSDAL: No matter what the Saudis or refineries do, as of July there’ll be another 76,000 barrels of oil on the American market. The White House announced today that’s when it’s going to stop adding to the Strategic Petroleum Reserve. Congress passed that requirement overwhelmingly just earlier this week.

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