Mercedes Exec: Big Oil Conspires to Kill Diesel Market
06-16-2008, 10:43 AM
#1
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Mercedes Exec: Big Oil Conspires to Kill Diesel Market
Mercedes Exec says Big Oil Conspires to Kill US Diesel Market
Mercedes-Benz has accused profiteering oil companies of ripping off diesel buyers and fears such action may kill the U.S. diesel passenger car market in its infancy. While oil prices have hit new highs, the pump price of diesel has surged to be more than a dollar a gallon higher than gasoline in some U.S. states, even though it is cheaper and less energy intensive to produce.
And Mercedes-Benz, which introduced its E320 BlueTEC diesel passenger car into the U.S. in 2006, is fighting back, with Daimler board member, Dr Thomas Weber, insisting there was no demand-driven reason for diesel prices to be so high.
“We knew this surge was coming in the U.S.,” Dr Weber, who heads up the Mercedes-Benz Research and Development division, told Leftlane.
“I believe there is definitely optimization of earnings by oil companies to take advantage of the higher usage of diesel today. There is not another plausible or economic explanation.”
While diesel sales are up in Europe, the economic downturn has lowered volumes in the U.S., where it is primarily a heavy transport fuel.
Even so, the U.S. Government’s Energy Information Administration reveals that diesel users have suffered more than double the gas price rises in the last year. Once cheaper, diesel is now significantly more expensive than gas everywhere in the United States.
The EIA’s data shows that while gas costs 443 cents a gallon in California, diesel there costs 499.2 cents and, in a nationwide trend, it is 72 cents more expensive on the East Coast and 63 cents more expensive in the Mid West.
While gasoline has risen 113 cents a gallon in California in the last 12 months, diesel has surged by 199.5 cents in the same period and its pump price surge has outstripped gasoline by 95.7 cents on the East Coast and 95.3 cents in the Mid West.
“The most important driver is a huge trend in diesel use in Europe, but that doesn’t explain it,” Dr Weber insisted.
“There are limitations on capacity on the refining sites, but that’s not it, either, really.
“Diesel production costs are less than the gasoline production costs so the only idea you can find is that these companies are in the business of making a profit, so that is what they do now.”
The EIA’s pump price breakdowns seem to confirm Mercedes-Benz’s allegations. While the cost of the basic crude oil accounts for 73 percent of the pump price of gasoline, it only accounts for 61 percent of the diesel price.
Instead, the EIA figures show oil companies are slugging diesel buyers by more than double diesel’s refining costs compared to gasoline. Only 10 percent of the gasoline price is in refining, while that figure leaps to 21 percent for diesel.
Nevertheless, Dr Weber predicted the massive gap between gasoline and diesel prices in the U.S., Australia and Europe would soon come to an end and, even in the meantime, they would not affect Daimler’s upcoming plans to hit the U.S. market in force with its diesel engines.
“For the customer, if they experience the advantages of diesel, they will stay with diesel anyway,” he insisted.
“The technology is 20 to 30 percent more efficient than gasoline and has more torque at lower rpm and that’s what most buyers actually use.”
Benz will launch BlueTEC diesel versions of its R-, GL and ML-class SUVs in October after receiving 50-state registration approval for the technology in March this year.
Words by Michael Taylor.
Mercedes-Benz has accused profiteering oil companies of ripping off diesel buyers and fears such action may kill the U.S. diesel passenger car market in its infancy. While oil prices have hit new highs, the pump price of diesel has surged to be more than a dollar a gallon higher than gasoline in some U.S. states, even though it is cheaper and less energy intensive to produce.
And Mercedes-Benz, which introduced its E320 BlueTEC diesel passenger car into the U.S. in 2006, is fighting back, with Daimler board member, Dr Thomas Weber, insisting there was no demand-driven reason for diesel prices to be so high.
“We knew this surge was coming in the U.S.,” Dr Weber, who heads up the Mercedes-Benz Research and Development division, told Leftlane.
“I believe there is definitely optimization of earnings by oil companies to take advantage of the higher usage of diesel today. There is not another plausible or economic explanation.”
While diesel sales are up in Europe, the economic downturn has lowered volumes in the U.S., where it is primarily a heavy transport fuel.
Even so, the U.S. Government’s Energy Information Administration reveals that diesel users have suffered more than double the gas price rises in the last year. Once cheaper, diesel is now significantly more expensive than gas everywhere in the United States.
The EIA’s data shows that while gas costs 443 cents a gallon in California, diesel there costs 499.2 cents and, in a nationwide trend, it is 72 cents more expensive on the East Coast and 63 cents more expensive in the Mid West.
While gasoline has risen 113 cents a gallon in California in the last 12 months, diesel has surged by 199.5 cents in the same period and its pump price surge has outstripped gasoline by 95.7 cents on the East Coast and 95.3 cents in the Mid West.
“The most important driver is a huge trend in diesel use in Europe, but that doesn’t explain it,” Dr Weber insisted.
“There are limitations on capacity on the refining sites, but that’s not it, either, really.
“Diesel production costs are less than the gasoline production costs so the only idea you can find is that these companies are in the business of making a profit, so that is what they do now.”
The EIA’s pump price breakdowns seem to confirm Mercedes-Benz’s allegations. While the cost of the basic crude oil accounts for 73 percent of the pump price of gasoline, it only accounts for 61 percent of the diesel price.
Instead, the EIA figures show oil companies are slugging diesel buyers by more than double diesel’s refining costs compared to gasoline. Only 10 percent of the gasoline price is in refining, while that figure leaps to 21 percent for diesel.
Nevertheless, Dr Weber predicted the massive gap between gasoline and diesel prices in the U.S., Australia and Europe would soon come to an end and, even in the meantime, they would not affect Daimler’s upcoming plans to hit the U.S. market in force with its diesel engines.
“For the customer, if they experience the advantages of diesel, they will stay with diesel anyway,” he insisted.
“The technology is 20 to 30 percent more efficient than gasoline and has more torque at lower rpm and that’s what most buyers actually use.”
Benz will launch BlueTEC diesel versions of its R-, GL and ML-class SUVs in October after receiving 50-state registration approval for the technology in March this year.
Words by Michael Taylor.
06-16-2008, 11:53 AM
#4
Senior Moderator
Who knows what's really going on with this, but I have thought it is quite curious how much higher diesel prices are than premium gas, let alone regular, since it used to be cheaper than regular gas.
Hopefully things will change soon so people will consider diesel vehicles. I would really hate to see the diesel car market killed before it even has a chance.
Hopefully things will change soon so people will consider diesel vehicles. I would really hate to see the diesel car market killed before it even has a chance.
06-16-2008, 11:59 AM
#5
I spend 2 much time here
Originally Posted by LuvMyTSX
Who knows what's really going on with this, but I have thought it is quite curious how much higher diesel prices are than premium gas, let alone regular, since it used to be cheaper than regular gas.
Hopefully things will change soon so people will consider diesel vehicles. I would really hate to see the diesel car market killed before it even has a chance.
Hopefully things will change soon so people will consider diesel vehicles. I would really hate to see the diesel car market killed before it even has a chance.
i agree
06-16-2008, 01:05 PM
#6
Race Director
I have a feeling this is a one time thing due to the introduction of low sulfur diesel last Oct. - that necessitated more expensive refining. As was mentioned the demand is certainly not going up yet the price differential from gas sure is. Like the housing bubble this one is bound to burst - the underlying factors don't support these price levels.
MB must be counting on those diesel sales to prop up the bottom line.
MB must be counting on those diesel sales to prop up the bottom line.
06-16-2008, 01:37 PM
#7
Senior Moderator
From BW two weeks ago:
Blame it on ethanol. 
Want to know why oil is hovering around $130 a barrel? A big but overlooked factor is the tight market for diesel fuel, now averaging $4.72 a gallon at pumps in the U.S.
Diesel is in strong demand partly because China is using more to run factories and generate power. Most recently, the Sichuan earthquake has increased the use of diesel generators. Meanwhile, more cars in Europe are running on diesel. And in both the U.S. and Europe, tighter sulfur standards have reduced the amount of diesel that can be produced from a barrel of crude.
The result: Refiners are fighting over crude supplies even at today's high prices because they can still make plenty of money by turning the crude into sought-after diesel. As of May 27, a barrel of diesel was going for about $32 more than a barrel of Light Louisiana Sweet crude oil, according to Platts, the energy and metals information unit of The McGraw-Hill Companies (MHP). In contrast, gasoline is plentiful, so the price spread for gasoline over crude was just $6. "The diesel is in control," says John Kingston, director of oil for Platts.
The ethanol boom is the strangest factor in the tight diesel market. Refiners don't need to produce as much gasoline now that they're blending lots of ethanol into it. Less gasoline makes for less hydrogen, which is a by-product of gasoline refining. So there's less hydrogen to use in producing low-sulfur diesel, says Phil Verleger, head of the PKVerleger consulting firm in Aspen, Colo. One more example of the law of unintended consequences.
Diesel is in strong demand partly because China is using more to run factories and generate power. Most recently, the Sichuan earthquake has increased the use of diesel generators. Meanwhile, more cars in Europe are running on diesel. And in both the U.S. and Europe, tighter sulfur standards have reduced the amount of diesel that can be produced from a barrel of crude.
The result: Refiners are fighting over crude supplies even at today's high prices because they can still make plenty of money by turning the crude into sought-after diesel. As of May 27, a barrel of diesel was going for about $32 more than a barrel of Light Louisiana Sweet crude oil, according to Platts, the energy and metals information unit of The McGraw-Hill Companies (MHP). In contrast, gasoline is plentiful, so the price spread for gasoline over crude was just $6. "The diesel is in control," says John Kingston, director of oil for Platts.
The ethanol boom is the strangest factor in the tight diesel market. Refiners don't need to produce as much gasoline now that they're blending lots of ethanol into it. Less gasoline makes for less hydrogen, which is a by-product of gasoline refining. So there's less hydrogen to use in producing low-sulfur diesel, says Phil Verleger, head of the PKVerleger consulting firm in Aspen, Colo. One more example of the law of unintended consequences.
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06-16-2008, 06:43 PM
#9
luvs redheads!
This low sulfer diesel was already in production and most pumps now do not offer off-road diesel. So if it costs less to produce, and you still have enough to cover demand of production then why the increase in price? I am glad Mercedes stepped up to point this obvious fact out.
06-17-2008, 05:24 PM
#11
I feel the need...
Originally Posted by charliemike
What we might be seeing is not necessarily a demand driven price increase but the perception of demand increase driving up prices, i.e. speculation.
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