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Diesel, Oil Prices Drop

May 16, 2011

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Diesel prices dropped for the second week in a row, down 4.3 cents nationally to $4.061 per gallon, as crude oil prices fell to a two-month low Monday.


The Department of Energy's weekly diesel price report shows prices are still above $4 per gallon in every region except the Gulf Coast, where they slipped to $3.996. The highest prices were in the West Coast Region at $4.248, led by California at $4.371.

Crude oil for June delivery dropped to $97.37 a barrel on the New York Mercantile Exchange Monday, settling at its lowest level since May 6. Futures overall have risen 36 percent in the past year.

Oil prices fell, say analysts, because of lowered concerns about the possibility that the Mississippi River could flood oil refineries. Louisiana opened nine of the 125 gates at the Morgana floodway to save Baton Rouge and New Orleans from flooding. Louisiana refineries are the second-biggest fuel producers in the U.S., following Texas. The floodwaters had threatened 10 Louisiana refineries that account for about 14 percent of U.S. capacity.

Tom Kloza, analyst with Oil Price Information Service, is not surprised by the recent fall in oil prices. In his blog, "Speaking of Oil," Friday Kloza said, "It is crowd behavior that accounts for most of the overreactions registered for crude oil every year. Plenty of dumb money was parked in oil futures and options from January through April, as WTI and Brent futures represented the 'can't miss bet' for money managers. Commodities had a long overdue sell-off during the first week of May."

However, Kloza said the loss of Libyan crude probably added $10 or $15 per barrel "to the normal springtime froth." The situation in Libya will continue to affect world crude prices, he said, because the country produces a very light and very sweet crude that can be processed by very unsophisticated refiners.





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