T&T: Diesel Prices & the Future

[Ricky L Carroll]

I won't take up a lot of bandwidth with a controversial subject that many would wish would go away, but I will have to agree with the premise of the linked article.
   
  I'm in the oil and gas business, albeit in the "upstream" (exploration) end of it and not the downstream side, but I can also say we plan our business, our future exploration dollars, around what we think the future really holds and not on short-term market spikes or what the goofy traders do (no offense to any goofer traders out there).
   
  Prices will drop, and maybe even drop precipitously over the short term, but long term, barring a complete collapse in developing nations like China and India, demand will continue to grow and support prices at levels near what we see today. It is simply getting harder and harder to find new reserves and places like Saudi Arabia, those traditional "swing producers", are nearing their production peaks, if they aren't there already.
   
  Specifically regarding diesel prices in the US: The "inversion" we've seen with diesel demanding a premium in the market is due to the combination of much higher demand for diesel from overseas markets due to changes in their industrial/commercial transportation demands and, in the US, the changeover to ULSD. The API warned Congress back in 2002 (I think it was 02) that the reductions in sulphur content they were consdidering, from 500ppm to 15ppm would result in tremendous increases in refining costs, up to $1.00/gal. These ULSD levels were at the edge of what technology could reasonably provide for the foreseable future. Even in Europe, where ULD levels were at 50ppm, reductions to 15ppm were considered only after tax reductions on their new ULSD fuels were enacted, and only if their 50ppm fuels remained available. 
   
  In the US, a reduction to a still signficant 50ppm would have reduced emissions (particulate) to levels more than five times below that of the 500ppm LSD, while adding only about  $0.15/gal in added refining costs. This is what the API recommended as a first step.
   
  Congress, of course, mandated the 15ppm reduction in one fell blind-political swoop. The result is that diesel is now more highly refined than gasoline and of course, now much more expensive. 
   
  Of course, all the hidden taxes, energy conversion losses and subsidies represented by the gov't mandated gasoline/ethanol blends probably means that conventional gasolines cost us more in the long run thean their pricing suggests, so I guess it all about evens out.
   
   
  Ricky
  still under sail. Just lurking most of the time.

Steven Dubnoff <sdubnoff at circlesys.com> wrote:
  At 01:58 PM 5/8/2008, Mike wrote:

>The present price rise in crude oil is driven strictly by speculation.
>The fundamentals do not support a price of much over $60 a barrel.

For a contrary view, see Paul Krugman's recent op-ed piece:

http://www.nytimes.com/2008/05/12/opinion/12krugman.html

Best,

Steve



Steve Dubnoff
1966 Willard Pilothouse
www.mvnereid.com
sdubnoff at circlesys.com
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