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Title: Oil Prices Plunged—Why Haven't Airfares and Some Home Energy Bills?
Source: National Geographic
URL Source: http://news.nationalgeographic.com/ ... t-not-airfares-and-some-bills/
Published: Jan 15, 2015
Author: Christina Nunez
Post Date: 2015-01-15 13:40:32 by Willie Green
Keywords: None
Views: 6694
Comments: 21

Low energy prices won't necessarily reduce prices for certain consumers

Now that the price of crude oil has sunk to a six-year low, gasoline is much cheaper, but airfares and some home energy bills still seem head-scratchingly high. Why isn't everyone seeing relief?

The cost of jet fuel, for example, has fallen a whopping 43 percent on average worldwide from the price a year ago. Don't rush just yet, though, to book that flight to Fiji. Airfares have barely budged, and in places such as the U.S. Northeast and the United Kingdom, home bills for electricity and heat are as high as ever.

The stubborn prices are prompting stern words from politicians. "It is curious and confounding that [air] ticket prices are sky-high and defying economic gravity," said New York Senator Chuck Schumer last month, urging a federal investigation.

Click for Full Text!


Poster Comment:

Evidence that we need high speed rail to provide more competition.

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Begin Trace Mode for Comment # 14.

#1. To: Willie Green (#0)

Why is diesel still a buck a gallon more than gas?

BobCeleste  posted on  2015-01-15   13:42:43 ET  Reply   Untrace   Trace   Private Reply  


#3. To: BobCeleste (#1)

Why is diesel still a buck a gallon more than gas?

That's a good question, Bob. I honestly don't know, but I'm willing to take a wild guess. Maybe it's because the excess oil that they start out with isn't all the same kind of oil. Petroleum pumped from traditional oil wells isn't the same as what they get from processing tar sands or fracking oil shales. So depending on what they start out with, and the design of the refinery, maybe gasoline is simply easier to make than diesel.

But I don't know the first thing about designing refineries, so that guess is probably totally wrong.

Willie Green  posted on  2015-01-15   14:11:21 ET  Reply   Untrace   Trace   Private Reply  


#12. To: Willie Green, BobCeleste (#3)

So depending on what they start out with, and the design of the refinery, maybe gasoline is simply easier to make than diesel.

But I don't know the first thing about designing refineries, so that guess is probably totally wrong.

I do and can unequivocably state that in general you are wrong. Much of the technology advances in pertroleum refining over the past 80 years or so has been oriented toward converting the heavier, non-gasoline part of the barrel of crude oil into gasoline. Some refineries can process as much as 40-50% of the raw barrel of crude oil into gasoline but this cost money. Diesel production from a barrel is generally straight run meaning that the amount of diesel produced is more or less the amount of diesel that is naturally occuring in the barrel of crude.

With the increased restricion of sulfur in diesel and heavier fuels, refiners do incur additional cost to remove the sulfur from straight run cuts. The cost of this though is consdierably less than that to produce 87-89 octane gasoline from the heavier cuts of the barrel.

You may find this link of interest but it is a bit techy and inside baseball to easily follow.

SOSO  posted on  2015-01-15   22:14:40 ET  Reply   Untrace   Trace   Private Reply  


#13. To: SOSO (#12)

OK, so what's the answer to Bob's original question: Why does diesel cost so much more than gas?

Willie Green  posted on  2015-01-15   22:39:07 ET  Reply   Untrace   Trace   Private Reply  


#14. To: Willie Green, Bob Celeste (#13)

OK, so what's the answer to Bob's original question: Why does diesel cost so much more than gas?

This hasn't always been the case. Some of it has to do with economies of scale (more gasoline is produced than diesel), some of it has to do within how common costs of refining are permitted to be allocated, some of it has to with taxes being higher on a gallon of diesel than on gasoline, some of has to do with the higher cost of delievery of home heating oil to the home rather than to a gas station.

You may wish to access this link for more info.

"Why Diesel Costs More Than Gasoline

Diesel fuel had traditionally been less expensive than gasoline, since it was easier to refine from crude oil. However, beginning in 2004, retail diesel fuel prices have consistently been higher than retail gasoline prices. There are several reasons why.

Seasonality is one factor that had always affected diesel fuel prices. Diesel fuel, also known as number 2 distillate, is essentially the same as home heating oil (the major difference is that diesel fuel contains less sulfur). In colder winters when home heating oil is in more demand, diesel prices typically climbed faster than those for gasoline.

Also, beginning in September, gas demand declines, but diesel fuel demand increases as more diesel fuel is required for the machinery to harvest and transport crops.

(There are some differences between the more common distillate fuels. Off-road diesel, intended for farm machinery and other non-transportation purposes, is dyed red to distinguish it from on-road diesel, which has both state and federal transportation taxes. Home heating oil is very similar to both diesel fuels but contains more particulates, which would damage a sensitive diesel engine if used in a vehicle.)

While seasonality has long played a role in demand, the more recent change in market dynamics, where diesel fuel is consistently more than gasoline, is a function of several broad factors.

Strong Diesel Fuel Demand in Other Countries

The United States is a gasoline-dominant motor fuels market. Approximately 98% of passenger vehicles in the United States are powered by gasoline, with fewer than 2% powered by diesel fuel. Consequently, the refining infrastructure is designed for optimum efficiency in producing gasoline. From a typical 42-gallon barrel of oil, the refining process delivers around 18 to 21 gallons of gasoline and 10 to 12 gallons of distillate, plus some other refined products. Refinery yields can somewhat be tweaked, but to produce significantly more distillate, they would need to undergo significant upgrades costing billions of dollars.

While the U.S. remains predominantly reliant on gasoline, other countries throughout the world are more heavily reliant on diesel fuel. Diesel fuel is used in the majority of new passenger vehicles in Europe. Strong international demand for diesel fuel €" for both passenger vehicles and for industrial machinery in the rapidly growing developing countries like China and India €" has placed a premium on diesel fuel imports.

U.S. Diesel Demand Increasing While Gasoline Demand Decreases

While U.S. gasoline demand has decreased since peaking in 2007, demand for diesel fuel has remained strong. Diesel fuel powers most of the country's buses, trucks, trains and farm equipment. It also powers an increasing number of passenger vehicles. U.S. clean diesel vehicle sales increased 25.6% in 2012, almost double the overall auto market's increase.

More diesel-powered vehicles mean more demand for diesel fuel. Comparing October 2010 demand to that of October 2012, demand for gasoline has decreased 3.4% while demand for on-road diesel fuel has increased 11.8%.

Introduction of Ultra Low Sulfur Diesel (ULSD)

ULSD is a clean-burning diesel fuel that is defined by the Environmental Protection Agency to have a maximum sulfur content of 15 parts per million (ppm). It was gradually phased into the market between 2006 and 2010, replacing the on-highway diesel fuel, known as Low Sulfur Diesel (LSD), which can have as much as 500 ppm sulfur content. In 2010, on-highway diesel fuel was 100 percent ULSD. ULSD is required for use in model year 2007 and later vehicles, which are equipped with advanced emissions control systems.

There are enormous environmental benefits to ULSD, but there are also logistical challenges. Special care was required when transporting both types of diesel fuel during the transition. This included pipelines, bulk terminals and tankers. A batch of ULSD that has even slight contamination with LSD could lead to significant fines if the batch of ULSD exceeded a certain level. In addition, to produce ULSD the refining industry had to invest approximately $8 billion in infrastructure upgrades and the daily production costs for ULSD are higher than LSD, since the fuel requires more refining. This influences the cost of all diesel and results in a premium for ULSD, which is estimated to add about 10 cents per gallon to the cost of diesel fuel.

Taxes

The final factor in why diesel fuel prices are higher is taxes. The federal tax on diesel fuel is 6 cents more than gasoline per gallon (24.4 cents vs. 18.4 cents). The last increase in the federal tax was in the early 1990s, back when diesel fuel was usually less expensive than gasoline. Taxes do not factor into why diesel fuel prices are higher than gasoline today €" strong demand and USLD are the causes €" but taxes are a factor in overall prices."

SOSO  posted on  2015-01-15   23:00:41 ET  Reply   Untrace   Trace   Private Reply  


Replies to Comment # 14.

#15. To: SOSO (#14)

Thank-you. I knew it was a lot more complex than the simple scenario that I was trying to guess.

Willie Green  posted on  2015-01-16 06:15:50 ET  Reply   Untrace   Trace   Private Reply  


End Trace Mode for Comment # 14.

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