So just so i get this straight in my own mind,

1. We are in a stagnant economy (which is being kind!), therefore demand is not increasing and probably declining

2. Diesel is cheaper to produce than Gasoline

3. We make too much of the stuff, so the oil companies ship the extra to Europe, while shipping the excess gas made in Europe to the US.

4. Bio-diesel production continues to ramp up (albeit still a very small portion of the total)

5. Oil companies are making record profits

6. There is no price fixing by the oil companies

7. I vaguely remember Chevron saying that they were trying to move to an energy content costing model a couple of years ago, looks like everybody followed suit

Now I understand. Maybe the simple answer is the right answer, the Big oil does not want efficient small cars sold in the US and can affect this by increasing the cost of diesel preventing penetration of this alternative.

What they want is a global balance of supply (Gas and Diesel) and production, and to keep the status quo which is working very well for them, thank you very much.

It seems the Big Oils are doing very well to prevent the introduction of Diesel cars in the United States. The domestic auto makers thought they have an escape route through Diesels, but that has been cut off at the pass so to speak.

Cervus, I'm afraid we won't see a price peak until China and India stop subsidizing their gasoline. India won't lower subsidies at least until next year's election and China probably won't change anything as long as they can help it, which could be a long time since they are pretty cashed up. Yes, in this case some governments are making the situation a lot worse!

As far as I am informed China (and India also I think) does not subsidize the price of gasoline or diesel. Instead they have price limits that must be obeyed. This means that Chinese refineries are unable to profit on imported oil so they halt production and this has created queues for gasoline and diesel all over China. If China lifts its price control it will lead to higher global crude oil prices because they will import more. The Chinese price controls are effectively preventing them from using as much gas as they what to.
The story is entirely different in Venezuela and most of the Middle East. They use price subsidies and finance it with profits from oil export. Chinese refineries do not have that option.

The skyrocketing price at the pump is frightening and something has to be done. Here is a suggestion.

The federal government should rethink the way that it encourages the non oil based fuel (NOF) marketplace. Instead of subsidizing Biofuel in the farm bill and tax incentives for domestic oil drilling, the procurement arm of the executive branch should request for bid various long term contracts to meet all federal fuel requirements including those of the defense department. This would eliminate any congressional involvement.

The specification of this fuel should be standardized and state that it not be manufactured from food crops. This would provide the following:

- Discipline in NOF engineering,
- A sure market for NOF,
- Encourage capitalization of NOF production,
- Lower the demand side pressure on the oil based marketplace,
- Increase the federal fuel budget only slightly.

The president should encourage and coordinate with state governments and various transportation companies such as airlines, trucking, and package delivery. A call to patriotism and tax incentives can be used to motivate corporations and revenue sharing for state governments.

I believe this would transfer speculative pricing pressure form oil base fuel to NOF. This could reduce the price at the pump for the ordinary guy and at the same time funnel money into NOF production.

This action would greatly reduce demand and the price of gas and especially diesel, together with standardizing NOF fuel and the engines that use it. In addition, this standard would provide a template for NOF use in the consumer sector of the economy.

If transportation energy is the top economic and security issue for our country today, it is unwise to leave it to random forces.

Something is seriously wrong with our foreign energy policies.

Last week at a congressional hearing the Secretary of energy was asked why were nuclear reactors offered to King Abdullahs instead of solar farms? “…After all the place is a desert were it never rains….”

He said that he didn’t know!!!

Unbelievable…

Thank God they will be gone in a few months!

DDW

I have no certain documentation of my own claim. The thing I remember is this quote from a previous GCC article. “The gap between the prices of global crude and domestic oil products is widening, leading to heavy losses for refiners. For quite a period of time, certain regions have faced a shortage of oil products or tight supply.” See http://www.greencarcongress.com/2007/11/china-raises-fu.html

If you say that subsidies are involved there may be something about it. However, I am not sure they make up for all of the price difference as indicated by the GCC article. If you have a reference to your information I would like to see it. We could both be right if the system is partial price control partial subsidy. How much?

i guess one problem is that its quite expensive to produce low sulfur diesel...

"something has to be done."

Set an inflation-adjusted price floor starting at $5/gal.

NYT: TF

'Squawk Box' Guest Warns of $12-15-a-Gallon Gas

MONEY – Robert Hirsch, an energy advisor, says CNBC morning show prediction was a citation of the 'Dean of Oil Analysts.

Hirsch told the Business & Media Institute the $12-$15 a gallon wasn’t his prediction, but that he was citing Charles T. Maxwell, described as the “Dean of Oil Analysts” and the senior energy analyst at Weeden & Co. Still, Hirsch admitted the high price was inevitable in his view.

Check it out at the following link

http://www.propeller.com/viewstory/2008/05/21/
squawk-box-guest-warns-of-12-15-a-gallon-gas/?url=
http%3A%2F%2Fwww.businessandmedia.org%
2Farticles%2F2008%2F20080521145247.aspx&frame=true

Markus thank you for the links they were really helpful

The ChinaDaily article shows that oil subsidies are involved but that they are insubstantial. They were almost absent in 2006 and 2007 or less than 1% of the Chinese import bill for oil. 1st quarter 2008 they have been raised a lot to about $1 billion USD. China imported 3.5-4 million barrels per day at an average price of $110 for that quarter. That is 3.5*110*90 (days) = $34.6 billion. So now the subsidy is about 3% of the import bill.

My previous conclusion still stands that if China lifted its price controls it would increase global oil demand and thereby global oil prices. The existing subsidies are simply insubstantial.

As a >very rough< rule of thumb oil exporting countries favors subsidies for social reasons and because they have an obvious party to pay the bill and oil importing countries favors taxes or price controls because it helps reduce oil consumption. A notable exception is Norway that exports more oil and gas per capita than any other country in the world and taxes prices so that they currently sell for $10 a gallon for gas and $11 for diesel. My own country is just a little behind. Believe me people are still driving as they did when it was $5 a gallon the only change that I notice is that people who are buying new cars go for the ones with high mpg. This has changed quite a lot. For Detroit to become profitable they need to get out of the SUV and truck business because there will be no demand for that at $10 gallon and a large used car market with affordable SUVs.

Yes, it really bites that diesel is $5 per gallon but the part of it that some people will never realize is home heating oil is also 4.50+ per gallon. That is a killer. You can go out and buy a hybrid and drop your transportation cost but what do older people do with fixed incomes to heat their homes? I hear people saying they are going to have to get a part time job to pay for oil.
Alt fuels, there is a company that is producing biofuel by feeding algae sugar. I know one major oil company has invested into it but lets take the subsidies away from the oil drilling and dump it against these type. By watching their article, production volumes have a lot of potential.