Appendix E:  Model Results

This appendix provides mid-term projections for end-use prices and total supplies of ultra-low-sulfur diesel fuel (ULSD), based on the Energy Information Administration’s (EIA’s) National Energy Modeling System (NEMS) Petroleum Market Module (PMM). Historical data for 1999 prices and supplies of highway diesel (500 ppm sulfur) are also provided for comparison (Tables E1 and E2).

The projected end-use (pump) prices are lower than the current prevailing prices for highway diesel fuel for several reasons. The end-user prices include crude oil costs, processing costs, taxes, and marketing costs.¹⁶⁸ Therefore, variations in the costs and taxes affect the projected end-user prices. The reference case, the Regulation case, and all sensitivity cases were based on mid-term projections for world crude oil prices used in Annual Energy Outlook 2001 (AEO2001). After the steep increase in world crude oil prices in 1999 and 2000, EIA projected that crude oil prices would decline initially (through 2003), then slowly increase through 2020.¹⁶⁹ EIA’s Weekly Petroleum Status Report for March 23, 2001, estimated the February 2001 price at $24.60 per barrel ($0.577 per gallon) in 1999 dollars for U.S. imported crude oil. In comparison, NEMS projects a world crude oil price of $21.37 per barrel ($0.509 per gallon) in 2010 (in 1999 dollars). The lower 2010 oil price projections from AEO2001 thus account for a difference of 6.8 cents per gallon in the projected end-use prices for ULSD.

In addition, the end-use diesel prices include a nominal Federal tax of $0.24 per gallon in 1999, which decreases in value (in real terms) in the forecast years. The differential in Federal taxes between 1999 and 2010 is about 4 cents per gallon. The PMM reference case projects an end-use price of $1.238 per gallon in 2010. After upward adjustment to account for the differentials in world crude oil price and Federal taxes (a total of 10.8 cents), the end-use price would be $1.346 per gallon at the current world crude oil price level.

The U.S. prices of most petroleum fuel products fluctuate between seasons and in response to world crude oil prices. The higher-than-normal diesel prices in 2000 and in the early part of 2001 reflect the low distillate inventory and high world crude oil prices. Since February 2001, the average price of U.S. highway diesel has been dropping steadily, to a level around $1.40 per gallon. According to the Weekly Petroleum Status Report for March 23, 2001, the average U.S. price of highway diesel was $1.338 per gallon (in 1999 dollars), comparable to the price projection of $1.346 per gallon from the PMM.

Notes