Posted By RichC on September 7, 2006
Everyone with a car, truck or SUV has noticed the drop in gasoline prices at the pump … but not all vehicle ‘fuels’ are seeing that same relief. (an 80 cent difference is about all a ‘diesel’ owner can take!) Anyway, I did a little digging today in hopes an expert might be able lend some insight on “what is going on” and found some help through a friend in Chicago.
Tom McCready is a institutional futures trader and he was willing to talk with me a few minutes as to what he sees. His conclusion is that last year refined fuel inventories were low as Katrina came ashore and impacted the refinery production supply of gasoline. Crude oil continued to rise which created a nervous market and so prices were traded up.
According to Tom, refineries were working as quickly as possible to get back to 100% with the stimulus being that they were the beneficiaries of high fuel prices. They had a real incentive to produce all the gasoline they could during summer driving season. Also contributing to higher prices were the events in the Middle East as well as predictions for an active summer/fall hurricane season.
Now, we have strong supplies of refined gasoline, the summer driving season is over, turmoil in the Middle East has wained, and we’ve yet to see a significant threat to refineries from hurricanes. This equates to lower ‘gasoline’ prices and futures trading that can move as quick in the other direction.
According to McCready, he doesn’t see diesel, jet fuel or heating oil in excess, besides they have their traditional peak season ahead. The inventory and stepped up refining was not the same as it was for gasoline. He had no comment on the switch from LSD to ULSD; I have heard from others in the industry that suppliers are struggling to get enough Ultra Low Sulfur Diesel to market.