|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.