DIESEL REPORT: Projections optimistic despite pipeline woes

| 8/10/2006

Aug. 10, 2006 Although U.S. oil inventories are at a five-year high and the feds are saying that problems with an Alaskan oil pipeline will not have an immediate impact on prices or availability, diesel supplies in Colorado and Wyoming are still tight, and the price is creeping up.

ProMiles reported that the average price for a gallon of diesel in Colorado increased from $3.324 on Wednesday to $3.333 on Thursday. For Wyoming, ProMiles reported an average of $3.187 for Thursday, up from the average of $3.166 on Wednesday.

That national average, which ProMiles reported as $3.118 on Thursday, was up from $3.111 on Wednesday.

Meanwhile, the U.S. Department of Energy has issued its revised estimates of what the average price of diesel will be this summer - $2.91 per gallon, or about 20 cents less than the current national average.

And, the DOE's weekly report on the nation's strategic oil and fuel reserves on Wednesday showed that even though crude inventories fell by 1.1 million barrels last week, the U.S. inventory is at a five-year high. However, the DOE's weekly report also showed that an increase in ultra-low sulfur diesel was more than offset by a decrease in regular diesel inventories.

Earlier this week U.S. Energy Secretary Samuel Bodman issued a statement that the government is ready to release part of the strategic reserves, if it becomes necessary. According to an analyst with the U.S. Energy Information Administration, it shouldn't become necessary - at least not because of the problems with the BP Amoco PLC pipeline coming out of Prudhoe Bay, AK.

The pipeline shutdown "certainly isn't going to create any shortages in gasoline, diesel fuel and other petroleum products," said EIA Analyst Tancred Lidderdale.

Some industry analysts also said that diesel production could get a break in the coming days and weeks in the wake of Britain's arrest of 21 terrorist suspects Thursday.

According to statements from Scotland Yard officials and U.S. Homeland Security Secretary Michael Chertoff, the 21 terrorists were plotting to use liquid explosives to bring down six commercial jets headed toward the U.S. The suspects were not arrested at airports, but rather were taken into custody at their homes and other locations.

However, the threat virtually closed London's Heathrow Airport and has resulted in the U.S. increasing the terror alert to the highest level - red, or severe - for flights originating in the United Kingdom and bound for the U.S.

Analysts are anticipating a drop in air travel, which will decrease the need for jet fuel and should free up some distillates for diesel production.

- By Coral Beach, staff editor