Projection for Diesel Fuel Prices

For as long as the prices of crude oil and the demand for distillate fuels are maintained at a high level, the retail diesel fuel prices will in most likelihood be high, too. The Energy Information Association (EIA) has released a report on what is likely to happen for remainder of 2008 and 2009 for the United States. It states that the national average retail prices for diesel fuel will reach its highest point during the third quarter of 2008 then it will decline by the fourth quarter of 2009.

However, these are just projections; hence, there is no assurance or guarantee because it can be greatly affected by the instability and unpredictability of the prices of crude oil and petroleum products. Among the many factors that affect the prices, below are the main ones that are faced by United States, especially the West Coast countries:

The Effect of Sulfur on Prices

The Environmental Protection Agency (EPA) standards for diesel fuel sulfur content can also alter the prices for diesel fuel. What needs to be taken into consideration is the logistics of delivery of the Ultra-Low Sulfur Diesel (ULSD) fuel to retail service stations. Most of these products are transported via pipelines to reach the bulk terminals then to tanker trucks then finally to the retail stations. Contamination may happen to the ULSD fuel because these pipelines, storage, and local distribution systems also serve to deliver other diesel fuels and petroleum products, which have higher sulfur content. If a batch of ULSD fuel gets contaminated, it might not be an option to mix it with additional low-sulfur product to bring back its sulfur content to the original level. The contaminated batch has to be returned to get reprocessed in a refinery, and this solution is a difficult and expensive one. More so, the production of ULSD fuel entails a big expense to begin with. So any problems that might arise along the way with regard to delivery will just add up to the expense.

Geography and Taxes

Another factor that affects the prices of diesel fuel in the United States is the geography. West Coast countries have generally higher prices than the other parts of the country. This holds true especially for California because of the taxes and issues on the supply. These countries add more tax—that is, they combine the state and local taxes, and add another tax value on top of the federal excise tax and state tax. Washington is one of the countries that have the highest tax.

Geography and Relief Supplies

The West Coast countries also have higher prices for diesel fuel because they have relatively fewer supply sources. Because majority of the refineries in this region are located in California, a single refinery that encounters difficulties in operations will greatly affect the diesel supply. In turn, this may elevate the prices because there will be fewer supply to meet the high demand. More so, the West Coast is very far from the Gulf Coast and other foreign refineries—that is, any fluctuation on supply-demand will generally result in price fluctuation because it will take some time to transport relief supplies to these countries. The farther the relief supplies are, the higher the diesel fuels prices will be and the longer it will remain at such price.