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HIGH DIESEL PRICES TO LAST THROUGH THE SUMMER
Thursday, 10 July 2008 13:05
High prices for diesel fuel will continue over the summer and may only begin to ease next year, according to the International Energy Agency (IEA), which has given warning of continuing tightness in the world's refining markets.
A worldwide shortage of middle distillates — oil products that include motor diesel and jet fuel — is continuing because of a surge in Chinese imports and the falling profitability of the refining sector. The price of road fuels would only begin to ease towards the end of the year and more likely by early next year, the IEA cautioned in its latest Monthly Oil Report, published today.
The cost of diesel has risen more rapidly than unleaded petrol due to a shortage of middle distillates in Europe and Asia. The popularity of diesel engines in Europe, a shortage of refining capacity and surges in demand from China have pushed the gap between diesel and petrol to extraordinary levels.
According to Experian Catalist, which monitors UK fuel prices, the gap between diesel and petrol is now almost 13p with average diesel prices around the country at about 133p a litre.
The IEA, which represents oil-consuming nations, is expecting growth of only 1 per cent in demand for crude oil next year because of the economic slowdown in Western countries.
However, the agency said that the current US economic slowdown, which argued for crude price weakness, was offset by oil demand in developing countries which remained strong. Meanwhile, growth in non-Opec supply is expected to remain weak. Crude oil output from countries outside the Opec cartel will only rise by 640,000 barrels per day (bpd) compared with growth in demand of 860,000 bpd, predicted the agency.
Meanwhile, the price of petrol is weighing heavily on American motorists who are driving less. Statistics from the US Energy Information Administration show a sudden drop in petrol consumption just before the July 4 holiday, typically a period of heavy demand for fuel. The agency also predicted sharp falls in jet fuel consumption as a result of recent announcements of capacity reductions by US airlines, which, in total, represent a cut of about 100,000 bpd in jet fuel demand by US carriers.
The IEA sees enormous pent-up demand for fuel in China, with demand for temporary diesel generators because of power shortages and rising demand for road fuel. Weakness in the Chinese refining sector has worsened the problem and boosted the need for imports of diesel fuel.
The agency points to the Chinese "teapot" refining sector, a network of small and low-technology domestic refiners that produce 1.5 million bpd of oil products but which are dependent on cheap supplies of subsidised crude oil. As the Chinese Government reduces price caps, the "teapots" are unable to afford to run their plant.
Source: http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4307924.ece
