|SNow we turn to prices.
How much of this years high diesel prices was caused by the
transition to ULSD? Certainly some of
it, but perhaps not as much as some people might think.
|SThis chart shows the difference between 500 ppm low-sulfur
diesel (LSD) and heating oil. LSD
compared to No. 2 heating oil is shown in red. Indeed we see a spike in both LSD and ULSD
in 2006 as we went into the ULSD transition.
ULSD could have pulled LSD along.
But note that 2004 and 2005 (apart from the hurricane) had
significantly higher LSD diesel premiums over heating oil than seen in prior
years. During 2004 and 2005, the
diesel-heating oil difference more than doubled from what had been.
|SThe increasing diesel value over heating oil seems to
reflecting a growing tightness in that market, which we will discuss shortly.
|SWhile the difference between ULSD and heating oil can be
seen on the chart, it is difficult to interpret the difference between LSD
and ULSD prices during this transition.
Local dislocations and the smaller volumes of LSD create short-term
variations that may disappear as the market settles down.