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Diesel fuel crucial for rebuilding quake-damaged Japan

Diesel fuel prices are rising as Japan begins its damage assessments in the wake of its recent earthquake, tsunami and nuclear plant damage. Diesel fuel, which is used by generators, in transportation and manufacturing, will play a big role in helping Japan rebuild. Dominick Chirichella, an oil analyst with the Energy Management Institute, states, “The major wild card for distillate fuel over the next three to six months will be how much additional diesel fuel is going to be required by Japan. Japan’s own oil industry which was a major exporter of diesel fuel formerly shipping out 50,000 barrels of diesel per day is working to supply the domestic market. Los Angeles refiners are exporting ultra low sulfur diesel to Japan at a high of 17.5 cents above benchmark heating oil futures. Brian Milne at Telvent DTN says, “The L.A. diesel differential we’ve seen is so strong on the expectation that the [Japanese] demand is going to be maintained, and it’s going to support prices.” The question remains whether increased demand for diesel for construction will be higher than the reduction in demand from a weakened economy. Chirichella says at this point there are signs that point to a smaller than expected decline in oil consumption in Japan which will keep diesel prices high. (March 28, 2011)