doggonit said:
So in their wisdom they are dissueding the public from buying diesels by elevating the price. The cost of the new processes to remove more sulphur is less than 2 cents per gallon over the prior costs.
ULSD is about 4.5 cents higher than heating oil at NY Harbor. A year ago the spread was about 8 cents. So ULSD is becoming slightly more abundant, and getting cheaper.
Futures prices for crude oil are in backwardization -- the current (spot) month is priced higher than later months. This encourages producing countries to pump more, but it also encourages refiners to buy only what they need and not build any stocks.
This is also the case with heating oil futures -- June '08 HHO is 10 cents/gallon less than Feb '08. Refiners want to produce what they can sell now, they don't want to hold excess stocks when the heating season ends.
The market anticipates much higher prices for gasoline -- June '08 is 18 cents/gallon higher than Feb '08. So refiners have an incentive to start making and storing summer formulated gas as soon as possible. As gasoline production increases, so will diesel production.
A few weeks ago, diesel was about 40 cents/gallon higher than RUG in much of the country. Now I'm seeing the margin shrinking to 10 cents/gallon in many markets, and it won't be more than a few weeks until RUG is higher than #2 diesel.
The market dictates what refiners will do -- they do not control the market.