Gas Tops Diesel for First Time Since ’09 as Calif. Refinery Outages Pinch Supply

The national average price of diesel fuel fell below gasoline for the first time in almost six years after diesel dipped and soaring gas prices in California caused the fuel’s national figure to jump.

Diesel declined for the seventh consecutive week, slipping 1.8 cents per gallon to $2.814, the Department of Energy reported July 13.

This cumulative seven-week result, worth 10 cents, sent diesel to its lowest level since April 27 and is the longest streak of falling prices this year.

The price also is $1.08 cheaper than a year ago.

In contrast, the average price of gasoline in the United States rose 4.1 cents a gallon to $2.834, according to DOE’s Energy Information Administration. The biggest contributor to the rise was California, where gasoline surged 44.8 cents from the previous week to $3.88.

“Southern California markets are experiencing a supply crisis because of refinery issues,” said Trilby Lundberg, president of Lundberg Survey.

EIA reported July 15 that the most recent price rise was caused by a delay in receipts of waterborne imports of gasoline blending components and a decrease in total motor gasoline inventories.

The agency said California’s special blend of gasoline, developed to help air quality, typically is more expensive than gas in the rest of the country.

“As a result, West Coast gasoline markets are primarily supplied by in-region production, and prices react more quickly and strongly during times of local supply shortages,” EIA said.

The agency report noted a series of supply disruptions caused by an unplanned refinery outage in February and additional outages in April. That combination, along with a 4% increase in demand for gas, led to the West Coast price surge, EIA said.

Phil Flynn, senior market analyst for the Price Futures Group, said part of the reason for diesel’s lower prices is refiners’ improving adeptness in making ultra-low-sulfur diesel, including producing larger quantities of it. He cited the difficulties in creating more environmentally friendly diesel as one of the culprits for its typically higher cost.

“[Truckers] really had to pay the price for cleaning the environment, but now it looks like the refiners have done a good job, now maximizing production and we’re turning a corner,” Flynn said.

The disparity between diesel and gasoline prices is best highlighted by the West Coast, where gasoline increased by 29.2 cents but diesel fuel fell 3.2 cents. California’s diesel took a 0.9-cent dip.

“The diesel fuel has a lot more inventory than gasoline,” Flynn said. “The demand for gasoline is the highest we’ve seen in the last couple of years, so it looks like we are in a new era where gas prices could actually stay above diesel prices for some time to come.”

Despite what happened in California, gasoline prices in the East Coast and the Midwest went down 1.3 cents and 1.5 cents respectively. The Rocky Mountain area went up 0.8 cents. 

Gas remained 80.1 cents a gallon cheaper nationally than a year ago.

Dave Burrescia, contract manager for the Hollywood Delivery Service — a freight system whose services include next-day less-than-truckload service within Southern California — said that, in the case of companies like his, which employ their own operators, the drivers themselves are affected the most by the price changes.

“[The prices] haven’t impacted our business per se, but our independent operators, it does impact them,” Burrescia said.

Before last week, crude was on a mostly downward slope from July 23, when the price was $61.01. But in the past week, prices stabilized, generally ranging from $51 and $53. Crude closed July 15 at $51.41, down 24 cents from $51.65 last week.

The prices of crude may continue to fall while the world remains “massively oversupplied” before markets tighten in 2016, when production growth outside of OPEC ceases, according to the International Energy Agency.

Stockpiles of gasoline on the U.S. West Coast fell to 27.8 million barrels in the seven days ending July 3, about 1.5% below the five-year seasonal average, government data show.