U.S. Diesel Prices Dropping for Multiple Reasons

on Jan 01, 1970
U.S. Diesel Prices Dropping for Multiple Reasons

U.S. Diesel Prices Dropping for Multiple Reasons

If you haven't noticed already, diesel prices around the United States have been plummeting over the last few weeks. Back in March, diesel prices in the United States reached as high as 4.021, but since then, prices have now dropped in 28 of the last 33 weeks since then. Based on projections by the U.S. Energy Information Administration (EIA), that trend will continue for awhile as diesel prices are expected to average $3.85 this year. That's significant because diesel prices have averaged $3.89, which means the average price for the rest of 2014 will need to average $3.66 the rest of the year to get there.

Not that anyone is complaining, but why are diesel prices dropping so much?

The basic answer is that there's a pretty big jump in domestic oil production combined with a decreased worldwide demand for crude. The price of North Sea Brent crude oil has fallen to roughly $91 per barrel, which is the lowest its been in more than two years and more than 20% lower than its year-to-date high total of $115, which came on June 19. Prior to the most recent decline, average monthly Brent spot prices traded within a $5 per barrel range, from $107 to $112, for 13 consecutive months through July.

While there have been substantial oil supply disruptions in the Organization of the Petroleum Exporting Countries (OPEC), those were offset by increases in U.S. production and lower global demand. And recently, Libyan oil production resumed, which combined with the weakened outlook for global oil demand means diesel prices will remain down for the foreseeable future.

Early in the year, total energy consumption was 3% above consumption for the early part of 2013, but consumption growth has been outpaced by increases in total energy production, which lead to a 17% reduction in net imports compared with the first six months of 2013, according to the EIA.

Between that, weakening global demand for oil, especially in Europe and Asia and slow economic growth outside of the United States, truck drivers and trucking fleets have become the beneficiary with lower than normal diesel prices, which is a trend that is expected to continue for the foreseeable future.

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