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Diesel Prices Continue to Fall; Oil Up After Four-Year Low

December 8, 2008

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The national average of diesel fuel continued to fall last week even as crude oil futures hit a four-year low.


The average price of diesel fell 10 cents from a week ago to $2.515, according to Monday's weekly report from the Energy Information Administration of the U.S. Department of Energy, a price 81 cents less than it was a year ago and down over $2 per gallon from its summer highs.

The highest prices were seen in the New England region, at an average of $2.849; the lowest average was reported in the Gulf Coast region at $2.465.


Crude oil prices rose 7 percent Monday after dropping to around $40 a barrel last week for the first time in four years. Analysts say prices were up because of expectations that the OPEC oil cartel may deliver a substantial cut in production, as well as a pledge Sunday by President-elect Barack Obama's to put massive investment into infrastructure to revive the economy. Crude oil for January delivery ended the day at $43.71 a barrel on the New York Mercantile Exchange.

Tom Kloza, chief oil analyst for the Oil Price Information Service, believes diesel prices still could fall a ways -- perhaps down to the $2 mark.

"There's still a lot of momentum for prices to move lower," he says. That's because even though wholesale gasoline prices have dropped so much refiners are having a hard time making any money on it, diesel wholesale prices are still about $18 a barrel more than the price of crude, which "by historical standards is pretty hefty." He thinks the market has not realized yet how much diesel demand has dropped, because the figures aren't as widely publicized as the ones about people driving less.

"I think with diesel you could make the case ... that perhaps it is selling for 25 or 50 cents higher than it might be if people start realizing it's not just gasoline demand that's in a tailspin; u.s. and global diesel demand is down as well," Kloza says.

Diesel prices are "headed sharply lower in the next 30 to 45 days, there's no question about that," Kloza says, but by the second half of 2009, he expects them to be in the $2.50 to $3 range.

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