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EIA Forecasts Continued High Diesel Prices

June 25, 2008

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Diesel prices will remain in the $4-plus range through the second half of 2009, the federal energy agency is forecasting.


"We see a very tight global crude market and we don't see a great deal of reduction in global consumption," said Guy Caruso, chief of the Energy Information Administration, at a meeting of trucking executives last week.

Caruso said EIA is projecting diesel prices to peak at about $4.80 and then start to decline later this year, but still remain relatively high, perhaps $4.10 to $4.20 range through the latter part of 2009.

The run-up in diesel prices has been caused by several factors related to supply and demand, he said.

On the supply side, one important but little noted influence was a decision by the Organization of Petroleum Exporting Countries to cut oil production in 2006 and 2007.

"Prices were coming down around then but since OPEC made those cuts it's been a steady rise to where we are now," he said - more than $135 a barrel on June 18th.

The most dramatic change has been on the demand side, however. "The most striking part of looking back at the last decade or so is that in 2004 we had the largest volumetric increase in world oil consumption in history. That was led by China but also U.S. growth was strong that year, as well as other countries."

The effect of that demand was to use up almost all the spare productive capacity in the world, Caruso said. The global refining industry is now working at 97 percent of its capacity, he said.

Another factor driving up demand is that in many markets - particularly in the developing world -governments subsidize fuel so prices are low and people consume more than they would if they paid a true market price.

He said that while there is oil price speculation in the commodities market, EIA believes it has followed the price run-up, not driven it.

Caruso warned that unless something dramatic happens, this winter and next will bring the highest heating oil prices the country has ever seen.

Caruso was speaking at a Diesel Fuel Strategies Workshop held by American Trucking Associations in Arlington, Va. In addition to the EIA forecast, the workshop covered fuel management and purchasing techniques, as well as how to save fuel with proper engine and tire specifying, driving techniques, trailer aerodynamics and anti-idling programs. ATA intends to offer the presentations on DVD, and look for more coverage in the next issue of Heavy Duty Trucking.

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