$5 Diesel Fuel, the Economy-Killer
New report shows how oil companies shorted the market and made it happen.
Santa Monica, CA — Oil companies put the brakes on the U.S. economy
this spring by manipulating the supply of diesel fuel and spiking the
price, according to a new study commissioned by Consumer Watchdog. The
detailed report shows that oil companies and their refiners produced
less diesel, imported less diesel and exported far more diesel early in
2008 than in previous years. The result is that diesel fuel today is 80
cents above the price of regular gasoline.
“Farm prices, grocery costs, clothing and even fast food are driven by
the cost of diesel fuel,” said Judy Dugan, research director of
Consumer Watchdog. “Consumers are paying a hidden ‘diesel tax’ on every
tomato and ear of corn that they buy for their July 4th parties. The
oil companies whose actions caused this price spike have a lot to
The study, “The Causes and Effects of the Record-Breaking Price of
Diesel," was conducted for the nonprofit, nonpartisan Consumer Watchdog
by independent oil industry analyst Tim Hamilton. (See the full study here.)
“School districts and fire departments face the choice between tax
increases and service cutbacks due to diesel prices,” said Hamilton.
“Even if the price of diesel drops, all these government entities will
be stuck with high-priced fuel contracts that could have paid for new
teachers and firefighters.”
Much of this year’s record gasoline price was due to the price of oil.
Diesel’s unusual rise above the price of gasoline, however, was caused
by industry actions and government’s refusal to oversee or regulate a
critical fuel, said Consumer Watchdog.
Transportation and manufacturing companies are also increasing their fuel surcharges at record rates.
Oil companies have blamed blame rising world demand for diesel and the
cost and difficulty of making cleaner low-sulfur diesel. This study
shows how oil companies told a different story only few years ago:
- Government accepted oil companies’ assurances (see Exhibit A) that
they would update their refineries to produce ample supplies of clean
diesel in time for a 2006 switchover. They didn’t keep that promise.;
- Instead, they shorted the market by reducing diesel production (See Table 1, Chart 2, and Chart 3) and drove up the price;
- They also failed to import sufficient diesel when supplies ran low (See Chart 4);
- At the same time they sharply increased their exports of diesel fuel
(See Chart 5), taking advantage of high world prices, to the detriment
of U.S. Consumers;
Links/URLs for charts:
“For too many years, our elected officials have taken the word of the
oil industry that deregulation is the best thing for the economy and
the nation’s security,” said Dugan. “Now the U.S. is suffering deep
economic insecurity, while the oil industry reaps its record profits.”
Consumer Watchdog has called for:
- A requirement that refiners keep a 30-day or larger supply of both
gasoline and diesel on hand, to keep accidental and deliberate cuts in
production from spiking the price of transportation fuels.
- Oversight of refinery operations, including the timing and duration
of maintenance shutdowns; and any effort by refiners to reduce their
overall capacity to make fuel.
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For more information, see: www.OilWatchdog.org and www.ConsumerWatchdog.