Washington: Soaring fuel prices are damaging the US economy, and the government should be doing whatever it can to slow or stop their astonishing ascent.
Demand for diesel, according to energy economist Philip K. Verleger, may be driving much of the run-up in crude oil, which reached $145 per barrel on July 3.
Truckers and other users of ultra-low-sulfur diesel fuel - the newly improved, cleaner version of the gasoline alternative - are being hit particularly hard by rising prices at the pump.
It's becoming clear the US should dip into its Strategic Petroleum Reserve for the light, low-sulfur crude that is most efficiently turned into diesel.
Demand for diesel is rising in both the US and Europe, and its price has been shooting up much faster than that of gasoline.
Over the past 12 months, the average price per gallon of all grades of gasoline rose $1.12, to $4.15. The price of diesel - which a year ago cost less than gasoline - increased by $1.81 a gallon, to $4.66, according to the US Energy Information Administration.
"Operators of refineries are responding to the rapid increase in diesel prices by bidding more and more for light, low-sulfur crude. The US could increase the available light-crude supply - and thus damp the surge in prices - by putting some of its reserve supply on the market," Verleger said in an interview.
Most crude, when refined, produces both diesel and gasoline; the lighter the crude, the bigger the share of diesel. Efforts to upgrade refineries to get more diesel from heavier crudes could take two years to relieve the pinch, Verleger said.
Until then, refiners don't want to produce more diesel from the less costly heavier crude because that would also mean more gasoline - sales of which have dropped in response to prices.
Which brings up another step the US could take to ease the diesel squeeze: adjust the federal requirement that 9 billion gallons of ethanol be blended with US gasoline supplies this year.
Ethanol mandate
The ethanol mandate is accomplishing its mission, reducing how much gasoline gets used in the US Gas prices in excess of $4 a gallon are doing the same.
As we've seen, however, the side effect of less gasoline use is less production of diesel - and more pressure on crude-oil prices.
Easing the ethanol mandate might help consumers in another way, by slowing the increase in food prices. Ethanol, a biofuel, is made mostly from corn, the cost of which has also been soaring.
On April 25, Texas Governor Rick Perry asked the Environmental Protection Agency to cut this year's ethanol mandate in half, to 4.5 billion gallons.
At the time, corn cost about $6 a bushel. Last week it topped $7.50 after the extensive flooding in the corn belt in the Midwest.
The EPA has until July 24 to issue a decision. The agency ought to lower the mandate to relieve some of the pressure on both corn and crude prices.
