Refineries in the U.S. are producing more diesel fuel and less gasoline. The reason is simple and logical. They make more money on diesel.
According to The Wall Street Journal, "The global hunger for diesel, coupled with tight refining capacity, has made diesel one of the few bright spots in the refining business." Demand in developing countries, where diesel fuel is widely used, gives the refiners a set of large markets.
Refiners believe that falling demand for gas due to a poor economy means that they can cut back gas production. There is something wrong with that reasoning because gas has moved to $4 a gallon. Refiners come back with the fact that the price of diesel is up even more.
The perverse thinking about how to divide gas and diesel production almost certainly argues for one conclusion: gas prices are going higher if supply is dropping.
Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.
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Reader Comments (Page 1 of 1)
5-16-2008 @ 11:21AM
B. Harrison said...
"Doing my bit for the gas shortage":
By handling more work via the telephone, internet, emails, conference call, and faxes, I've managed to reduce my gasoline consumption from six "fillups" a month to only two tanks of gas per month.
And the net result is that I have discovered that more matters can be handled from my office, and more travel and meeting waiting time can be saved handling business in this manner.
In business, those face-to-face, one-on-one meetings are important; but we don't need nearly as many of those as we generally have. You might want to try it; you might be surprised how well it can work once you've established yourself with the clients.
5-16-2008 @ 8:57PM
michael said...
why are we letting the goverenment do this to this country?, dividing the rich and poor, i just checked winter heating fuel 4.00 a gallon and it is may, i live in ct. went to mass today to do some business, gas is 30 cents less than here, i think the bush boys should think of freezing what the oil company's are doing.
5-18-2008 @ 8:36PM
CrossProfit said...
Yes, gasoline prices will continue to go up as the refiners attempt to increase the crack spread. Whenever crude rises quickly, the refiners lose considerably on the crack percentages. There is a certain lag time before the spread widens by passing on the cost via higher gasoline rates.
Crude has increased over 20% since the beginning of the year and this in itself is the reason why gasoline prices continue to climb. On the other hand, there is not enough competition in diesel. This is why diesel has appreciated already. In fact, you can more or less gauge where gasoline prices will be in a month from now by looking at the price of diesel.
Psychologically this will soften the blow.
As an aside, as soon as crude stops climbing, pure play refiners such as VLO will return to higher profitability. This is something to look out for.
CrossProfit
http://www.crossprofit.com