Thread: Interesting Observation

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The diesel flip is interesting. During the gas peaks a few years ago it cost more, but prior to that it was less than unleaded. Now it's cheaper again. Go figure!

Going along with what Bob said, there is a refinery in Memphis owned by Valero which produces vitually all of the gasoline consumed in the area. It doesn't matter what name is on the pump at the gas station it all comes from the same refinery.

Supply and demand and current market price are things that are in play here.

I found it interesting that a few years ago, it cost MORE to purchase Leaded gas than unleaded gas at the pumps. Since Lead is an additive, going without it should cost less, right? Wrong. All production was geared to making unleaded gas. Creating leaded gas was the abnormal process thus it cost more to create.

Now... I don't really buy the story about Diesel fuel. The same process has been used for years and the vehicle to gas fuel versus the vehicle to diesel fuel remains approximately the same. It didn't make sense that diesel fuel went above gas prices and now have moved near or slightly below gas prices. The oil companies control the prices by how much they produce and have in researves... thus supply and demand. They know this econmic principle very well.
J

Well---on the diesel/gas===there are only so many gallons of stuff that can be made for so many gallons of stuff

And Diesel is very seasonal commodity--example---springtime--farmers fill there tanks and get into fields--contractors fill there tanks and all equipment and go to work--fall/winter-home heating oil ( of course for heating, we also use coal, natural gas, propane,butane so demand is not as concentrated as diesel demand)

Originally Posted by MRJB1929

Supply and demand and current market price are things that are in play here.

I found it interesting that a few years ago, it cost MORE to purchase Leaded gas than unleaded gas at the pumps. Since Lead is an additive, going without it should cost less, right? Wrong. All production was geared to making unleaded gas. Creating leaded gas was the abnormal process thus it cost more to create.

Now... I don't really buy the story about Diesel fuel. The same process has been used for years and the vehicle to gas fuel versus the vehicle to diesel fuel remains approximately the same. It didn't make sense that diesel fuel went above gas prices and now have moved near or slightly below gas prices. The oil companies control the prices by how much they produce and have in researves... thus supply and demand. They know this econmic principle very well.
J

Good observations on supply and demand plus the impact of production costs. You've got the diesel thing a little off though, but given what you display of economic knowledge maybe this will help.

A few years ago federal standards for sulphur in diesel fuel wer severely tightened, which meant that diesel fuel would need more processing than previously, thus raising costs. Also, with the economy of the time, many jurisdictions felt it a good time to tack on extra taxes that didn't hit the consumer as directly (diesel fuel is a small fraction of total fuel market at retail). Both those factors pushed diesel fuel prices above gasoline. Now, with economic slow down, diesel demand is down. This time of year there is also less demand for heating oil (alternate branding of diesel fuel). The amount of diesel yield versus gasoline in any given crude run at the refinery is not a constant, it varies with the type of crude in the supply stream. Using supply and demand principal, it would be realistic to say that diesel inventories are comparatively high right now so it's "on sale". The diesel fuel/heating oil market is less elastic than gasoline, so needs different incentives.

Thanks Uncle Bob, That does explain a lot as to the Diesel prices. I didn't realize or monitor that Gov. Regulations and taxes were the compensating factors.
Jerome

Uncle Bob,
I believe that at the same time the sulphur limits were tightened the federal government made the decision that the government reserves of diesel had to be the new low sulphur fuel, which put a severe strain on the refining system and contributed to the price peaks of both gasoline and diesel. Had their approach been to phase in the amount of low sulphur fuel in reserve over a year, or to simply decide that an emergency reserve of diesel could be higher in sulphur (in a true emergency would we really be concerned?) the impacts would have been much, much less.

Good to know it's not just greed that regulates the industry and pricing. I still find it funny that gas is about 5 cents a gallon more here than it is 10 miles to the south, and 10 miles to the North. Even more wierd that I live closer to the refinery, than say 100 miles to the north, but gas there could be 10 cents cheaper!