The relationship between weekly gasoline and diesel fuel prices has shown a clear seasonal pattern since at least March 1994, when EIA began collection of weekly diesel prices. Typically, average retail gasoline prices move above average retail diesel fuel prices from roughly April through September. Similarly, diesel fuel prices usually move above gasoline prices during the heating season months of October through March. Heating oil and diesel fuel are closely related products, with the main difference being that diesel fuel has lower sulfur content than heating oil. As a result, diesel and heating oil are produced together, and seasonal increases in heating oil demand can put pressure on the diesel fuel market as well. This pattern abruptly ended with the 2004-05 winter, however. Not only has the diesel premium matched or lasted longer than at any time since EIA began collecting weekly retail diesel prices, but the gap between diesel and gasoline prices has been wider this winter and spring than in previous years.
Generally, the summertime is dominated by gasoline demand here in the United States but, this year, surging global distillate demand in Europe and Asia has retail diesel selling at a premium over retail gasoline. Historically, U. S. finished gasoline demand is more than twice U. S. total distillate demand, but consumption of distillates is strengthening at a quickening pace. In fact, U. S. distillate demand has grown faster this year than gasoline demand, with distillate demand growth from last year averaging more than twice that of gasoline. Distillate demand is also strong in Europe, where a significant fraction of the new vehicle fleet is diesel-powered, and in China, where demand for distillates is twice that for gasoline, and where overall demand has been growing rapidly. The global balance for distillate fuel has tightened seemingly much more so than that of gasoline.
With diesel selling at a premium to gasoline, refiners have been adjusting their product mix to take advantage of prices. In fact, distillate production has been at historically high levels as refiners try to capitalize on the price differential between the middle distillates and gasoline. However, strong global demand for non-highway distillates seemingly has limited U. S. heating oil restocking somewhat to date. Jet fuel is also playing an important role in the tight distillate market. As demand for air travel increases along with ground transportation, the problem becomes simultaneously satisfying demand for all light products. Jet fuel production cuts into distillate production rather than gasoline production because of the refinery distillation processes. So without increased crude inputs available, increasing jet fuel production reduces production of heating oil and diesel fuel. With the heavy worldwide focus on transportation fuel production, market concern is intensifying that refiners will have inadequate time to replenish heating oil inventories ahead of the winter heating season.
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