Monday, August 3, 2015

Diesel catching on, despite price fluctuations

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Diesel powered vehicles are becoming more popular with American drivers, but wild fluctuations in the fuel's price could scare some buyers off, despite the fact that a diesel engine can cut their fuel consumption 20 percent or more.

"Car buyers get nervous when they see the price of a fuel jumping around," Edmunds.com senior analyst Bill Visnic said. "People don't like uncertainty."

The problem is exacerbated because the price for a gallon of diesel often rises or falls for reasons unrelated to the price of gasoline, making the fuel look capricious and uncertain.

"The cost of a gallon of diesel may go up on the same day gasoline goes down," IHS Automotive senior analyst Stephanie Brinley said.

That was particularly evident last winter. At times, diesel cost nearly $1 more than gasoline in some parts of the U.S. According to AAA, the national average price in mid-May for a gallon of diesel was 5.4 cents lower than a gallon of premium gasoline and about 30 cents more than a gallon of regular gas.

"The price of diesel is a mystery to many people," said Allen Schaeffer, director of the Diesel Technology Forum, an industry group made up of automakers, suppliers and other companies. The Diesel Technology Forum expects diesel-powered vehicles to grow from around 3 percent of the U.S. market today to 6 percent to 9 percent in 2020.

IHS Automotive's forecast is in the same range. Some automakers and suppliers with particular strengths in diesel technology are more optimistic.

As many as 40 new diesel vehicles – everything from small cars to full-size pickups and SUVs – are to go on sale between now and the end of 2016.

U.S. oil refineries are investing aggressively to produce more diesel, because demand around the world is rising, said Tom Kloza, chief oil analyst with the website Gasbuddy.com, which helps consumers find the lowest fuel prices.

"Diesel is the product refineries want to make," Kloza said. "It's more steadily profitable than gasoline."

He says the price was exceptionally volatile this winter because diesel fuel is very similar to the heating oil that's widely used in Europe and the Northeast U.S. On top of that, increased demand for natural gas to heat homes and buildings caused some utilities and businesses to use diesel to generate electricity.

Because of those factors and more, the global price for a barrel of diesel ranged from $119 to $130 in the last quarter of 2013 and first quarter of 2014, Kloza said. That compared with as low as $99 a barrel for gasoline.

Diesel recently surpassed gasoline as the world's most common oil fuel. Bank of America predicts it will be consistently more profitable for refiners for the foreseeable future.

That's because demand is rising all over the world. In Europe, diesel powers about half of new cars. Diesel is gaining popularity in developing economies, especially in power vehicles, construction and mining equipment and electricity generators. Most big ships are expected to switch to diesel, too.

The federal tax on diesel is 6 cents a gallon higher than gasoline.? About one-third of U.S. states levy an additional tax on diesel. The amount varies from state to state.

"It's easier for politicians to raise the tax on diesel because it's a fuel that's traditionally used mostly for commercial vehicles," Kloza said.

Despite all that, the consensus is that U.S. diesel consumption will rise steadily as automakers and consumers reach for more fuel-efficient vehicles.

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Mark Phelan: mmphelan@freepress.com

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(c)2014 Detroit Free Press

Visit the Detroit Free Press at www.freep.com

Distributed by MCT Information Services

Detroit Free Press (MCT)
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