Atlantic Basin Price Incentives Shifting Toward Distillates
Source: Bloomberg New York Harbor Conventional Gasoline, No. 2 Heating Oil; NW Europe 0.2% Heating Oil Cargo and Premium Gasoline
SPrices have been reflecting product demand shifts.  This chart shows monthly spot price differences between heating oil and gasoline.  Diesel and heating oil prices move together, so the trends here reflect relative diesel price behavior as well.

SHistorically, heating oil and diesel prices remained below gasoline except during some of the cold winter months.  But in 2005, for the first time diesel prices stayed above gasoline during the summer months, and only reversed when Hurricanes Katrina and Rita interrupted supplies.   This was a harbinger of tightening distillate markets.   In 2006 and 2007 gasoline returned to typical pattern of rising above diesel prices during spring and summer months.  But during fall and winter, we also were seeing stronger-than-usual surges in diesel prices above gasoline.

SIt appeared that world growth in distillate demand might finally be manifesting itself in price strength relative to gasoline.  While distillate prices stayed below gasoline, there was no incentive to invest in capacity like hydrocracking to produce more distillate rather than gasoline.  But this price shift in distillate was a signal that such investments might now look more attractive.