The rapid and dramatic decline in crude oil prices has not been matched by a similar fall in retail diesel fuel prices, at least up to now.
The spot price of a barrel of West Texas Intermediate (WTI) crude, which as of yesterday's energy market trading stood at $44.53, has dropped nearly 60 percent over the past four months. However during that same time frame, retail diesel prices have only declined by about half that amount, a significant drop but nowhere near the decline seen in crude prices. As of Jan. 26, the average nationwide price of diesel stood at $2.86 a gallon, according to data from the Energy Information Administration (EIA), a unit of the U.S. Department of Energy. EIA, which calculates gasoline and diesel prices weekly, releases its next data series on Monday.
Sean Hill, an EIA economist, said it typically takes between 10 to 14 days for price changes in crude oil to filter through to the retail markets for gasoline and diesel. During this cycle, though, the lag time has been longer. Hill said EIA analysts have been unable to explain the recent pattern. He surmised that diesel prices might have been buttressed by the increased wintertime demand for a form of diesel used as heating oil.
Hill said that when crude oil and wholesale diesel prices are compared, the gap narrows. For example, while the price of Brené North Sea crude has dropped about 57 percent since June, the average U.S. wholesale diesel price has fallen by 46 percent, Hill said. EIA has found that Brené, which is produced in Europe and sold on world markets, historically sets the price for other petroleum products, including WTI.
The current spread between wholesale and retail diesel prices, however, is unprecedented, according to Hill. "[It's] as high as we've ever seen it," he says. Since around Thanksgiving, the spread ballooned to $1.40 a gallon, compared to the 80 to 90 cent a gallon gap that was the norm over the past two years, he said.
The spread, which reflects the protracted lag between wholesale and retail prices, is starting to narrow as crude prices appear to have stabilized, and diesel prices have continued to fall. "If crude prices were to stay where they are, I'd expect that spread to continue to fall back to its normal level and retail diesel prices to show similar percentage drops as wholesale and crude prices," Hill said. With the wholesale-retail gap still historically wide, there's more room for retail diesel prices to fall, he said.