US ethanol mandates may be causing high diesel prices

Southeast Farm Press is reporting that the surge in US ethanol demand may be causing diesel prices to soar. Diesel production is generally a byproduct of gasoline demand — the more gasoline demand, the more diesel produced. However, the combination of the ethanol mandate and falling consumer demand due to economic conditions has caused gasoline production to be sharply cut-back. Diesel demand has not fallen as sharply – due to continuing demand from China and the winter market for diesel heating oil.

With falling production and rising demand, prices have started to soar — possibly making biodiesel more attractive as a substitute. The DOE reports that a 42 gallons barrel of crude oil is typically refined into 19 gallons of gasoline, 10 gallons of diesel and heating oil, and the remainder going to other products including plastics and fertilizers.

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