Diesel Production (Lack of)

The following highlights one of the reasons why diesel is at a premium to ULP.

London (Platts)--15May2008/659 am EDT/1059 GMT
A lack of diesel production capacity and complex refining capacity is boosting demand for light crude, widening the difference in prices between light and heavy grades, OPEC said Friday.
In its latest monthly oil market report, the oil exporters' cartel said investments in refining so far this decade had failed to keep pace with rising demand for diesel and other middle distillates.
Between 2000 and 2007 world demand for distillates rose by around 5.2 million b/d, OPEC said, compared with an increase of just 2 million b/d in gasoline demand and a fall in demand for fuel oil.
Investment, however, was still geared towards gasoline production, with around 1.2 million b/d of gasoline-making conversion capacity added and just 700,000 b/d for distillates, "resulting in a mismatch between product demand and refinery output."
"The lack of refinery operational flexibility due to a shortage of proper conversion units to produce more middle distillates has left refiners with little option but to increase light grade throughputs, resulting in a widening spread between light and heavy crude," OPEC said.
Over the last year Saudi Arabia's Arab Heavy crude has seen its discount to WTI fall from around $4/barrel to around $15/b.
"The persistent mismatch between the product demand pattern and the refinery configuration has focused further upward pressure on light crude prices. Downstream constraints are continuing to contribute to the high risk premium for these grades, leaving the market increasingly sensitive to any disruption in light crude supplies," OPEC said.