Released on November 3, 2004
(Next Release on November 10, 2004)

Gasoline vs. Diesel Fuel
While many Americans went to the polls yesterday to make their choice for the next President of the United States, very few Americans choose their personal vehicles based on the type of fuel they use. Although a small number of cars and light trucks now in the fleet are powered by diesel fuel, the vast majority of personal vehicles used and sold in the United States continue to run on gasoline. But one argument some owners of diesel-powered vehicles sometimes make is that generally, diesel fuel prices are lower than gasoline prices, and the chart below backs up that assertion, at least in recent years. But in EIA’s latest weekly retail price surveys, the average price for diesel fuel is more than 17 cents per gallon higher than gasoline prices. Why has this atypical gap occurred?

This year, a large gap between retail diesel prices and retail gasoline prices occurred at the pump during September and October, just as crude oil prices began rising dramatically. While the crude oil price increase impacted both products similarly, diesel fuel prices reflected an additional tightening in distillate fuel markets over these two months. These months represent the beginning of the heating season and are characterized by growing demand for diesel fuel. Diesel fuel and heating oil are very similar petroleum products, with the major difference being that diesel fuel has less sulfur. Thus, increases in heating oil demand often put increased pressure on diesel fuel prices as well. In addition, diesel fuel is used heavily for the harvesting of crops and thus, demand tends to increase during the fall. On the other hand, demand for gasoline generally declines after Labor Day weekend, as vacation travel dramatically decreases. The difference in demand patterns for these two products is illustrated by changes in stocks for these two products. Stocks for distillate fuel have fallen seven consecutive weeks since mid-September and are currently below the lower end of their typical range for this time of year. Meanwhile, gasoline stocks have been increasing in recent weeks and are currently in the upper half of their typical range. As crude oil prices increased by about $10 per barrel (about 24 cents per gallon) between early September and late October, a large gap developed between retail diesel and gasoline prices because of this additional tightening in diesel fuel markets. At the U.S. level, retail diesel prices rose approximately 35 cents over this period while retail regular grade gasoline prices only rose approximately 20 cents. The increase in gasoline prices was solely related to the increase in crude oil prices. In fact, retail gasoline prices have not even fully passed on the increase in crude oil prices, largely due to the seasonal decline in demand helping to reduce the pressure to increase prices even more. However, for diesel fuel prices, prices have increased more than crude oil prices would dictate, due to increased price pressure in diesel fuel markets related not only to the seasonal increase in demand for this time of year, but also due to a growing economy. As a result, a relatively wide gap has opened between retail diesel fuel and gasoline prices.

Of course, an increase in diesel fuel prices will likely affect a lot more people than just those using diesel fuel. This is because many goods are shipped across the country in vehicles which use diesel fuel. An increase in diesel fuel prices means an increase in the cost of shipping these products, which, in some cases, can result in an increase in the cost of the goods themselves. Additionally, there are many small, independent trucking companies that, due to the competitive nature of their business in certain regions of the country, will have a hard time fully passing on their increased costs and will have difficulty surviving. Thus, while gasoline receives the bulk of the attention when it comes to transportation fuel prices, diesel fuel prices also have a significant impact on the economy as well.

Residential Heating Fuel Price Increases Abate
Residential heating oil prices decreased for the period ending November 1, 2004. The average residential heating oil price decreased by 0.3 cent from last week to reach 205.7 cents per gallon, an increase of 67.4 cents over the 138.3 cents per gallon average for this same time last year. Wholesale heating oil prices decreased 14.0 cents to reach 149.9 cents per gallon, an increase of 64.5 cents from the November 3, 2003 price of 85.4 cents per gallon.

The average residential propane price increased 3.0 cents, to 168.7 cents per gallon. This was an increase of 36.2 cents over the 132.5 cents per gallon average for this same time last year. Wholesale propane prices decreased 5.6 cents per gallon, from 106.4 to 100.8 cents per gallon. This was a gain of 36.9 cents from the November 3, 2003 price of 63.9 cents per gallon.

Retail Gasoline Prices Edge Upward Again
The U.S. average retail price for regular gasoline rose this week by 0.2 cent per gallon from the previous week to reach 203.4 cents per gallon as of November 1, 49.9 cents higher than this time last year. This small increase comes after a 0.3 cent decrease last week after 5 previous weeks of rising prices. Prices were mixed throughout the country, with the Midwest region seeing the largest increase of 1.6 cents to 198.4 cents per gallon. Retail prices on the East Coast were flat at 201.6 cents per gallon, which is 48.5 cents higher than last year. Prices in California fell 2.5 cents to 236.9 cents per gallon, which is 65.8 cents higher than this time last year.

Retail diesel fuel prices fell by 0.6 cent to 220.6 cents per gallon after prices rose the previous seven weeks. Retail diesel prices are reflecting not only the rise in crude oil prices, but also pressure from strong demand and high spot prices for heating oil. Prices were mixed throughout the country, with the West Coast seeing a decrease of 1.0 cent to reach 237.0 cents per gallon. California prices remained the highest, falling 0.6 cent to average 243.1 cents per gallon.

Propane Inventories Push Lower
U.S. inventories of propane reported their third consecutive weekly drop that totaled 0.7 million barrels, leaving inventories as of October 29, 2004 at an estimated 67.5 million barrels. Comparatively, the October stockdraw measured only slightly more than 0.8 million barrels, a level below the nearly 2.6-million-barrel stockdraw averaged for this month during the most recent 5-year period from 1999 through 2003. As such, inventories at the national level continued on a path at the upper limit of the normal range for this time of year. Regional inventories pushed lower in the Midwest and Gulf Coast regions last week, while East Coast and the combined Rocky Mountain/West Coast regions showed inventories remaining flat during this same period. The Gulf Coast stockdraw, the first of the season, was relatively modest at 0.2 million barrels, while the Midwest stockdraw, the fourth consecutive weekly decline, measured 0.4 million barrels. Although October weather was above normal in both the East Coast and Midwest areas, early reports of strong crop drying demand in some Midwest states apparently more than offset the effects of the balmy temperatures during the month. Although Gulf Coast inventories remain well above the normal range for this time of year, Midwest inventories continued on a track close to the lower boundary of the normal range. Propylene non-fuel use inventories inched lower by 0.1 million barrels to account for a slightly lower 3.4 percent of total propane/propylene inventories, compared with last week.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.