• 8 hours Oil Pares Gains After API Reports Surprise Crude Inventory Build
  • 9 hours Elon Musk Won’t Get Paid Unless Tesla Does “Extraordinarily Well”
  • 9 hours U.S. Regulators Keep Keystone Capacity Capped At 80 Percent
  • 10 hours Trump Signs Off On 30 Percent Tariff On Imported Solar Equipment
  • 12 hours Russian Funds May Invest In Aramco’s IPO To Boost Oil Ties
  • 13 hours IMF Raises Saudi Arabia Growth Outlook On Higher Oil Prices
  • 14 hours China Is World’s Number-2 In LNG Imports
  • 1 day EIA Weekly Inventory Data Due Wednesday, Despite Govt. Shutdown
  • 1 day Oklahoma Rig Explodes, Leaving Five Missing
  • 1 day Lloyd’s Sees No Room For Coal In New Investment Strategy
  • 1 day Gunmen Kidnap Nigerian Oil Workers In Oil-Rich Delta Area
  • 2 days Libya’s NOC Restarts Oil Fields
  • 2 days US Orion To Develop Gas Field In Iraq
  • 4 days U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World
  • 4 days Senior Interior Dept. Official Says Florida Still On Trump’s Draft Drilling Plan
  • 4 days Schlumberger Optimistic In 2018 For Oilfield Services Businesses
  • 4 days Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 4 days Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 5 days TransCanada Boasts Long-Term Commitments For Keystone XL
  • 5 days Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 5 days Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 5 days Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 5 days Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 5 days Venezuelan Output Drops To 28-Year Low In 2017
  • 5 days OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 6 days Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 6 days Kinder Morgan Delays Trans Mountain Launch Again
  • 6 days Shell Inks Another Solar Deal
  • 6 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 6 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 6 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 6 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 6 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 6 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 7 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 7 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 7 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 7 days Norway Grants Record 75 New Offshore Exploration Leases
  • 7 days China’s Growing Appetite For Renewables
  • 7 days Chevron To Resume Drilling In Kurdistan
Alt Text

The Labor Shortage In The Shale Boom

Shale drillers are set to…

Alt Text

Is An Oil Price Spike Inevitable?

Oil prices have rallied recently…

Alt Text

A Rare High-Profile Utility Takeover

Dominion Energy, Virginia’s largest utility…

VW Scandal Bad News For Diesel

VW Scandal Bad News For Diesel

The outlook for diesel looks grim after U.S. regulators found that the world’s second biggest car manufacturer cheated on its emission tests.

Last Friday, the U.S. Environmental Protection Agency reported that Volkswagen violated the U.S. Clean Air Act. The German auto maker deliberately rigged the so called emission control systems in several models of their cars in order to reduce nitrogen-oxide emissions when tested in the lab.

However, when tested on the road, the size of the ‘diesel deception’ proved to be bigger than many could have imagined. Bloomberg reported on September 22 that on an open road test both the ‘Jetta’ and ‘Passat’ models exceeded U.S. nitrogen-oxide emissions standards by up to 35 times.

It was Volkswagen CEO Martin Winterkorn who admitted that the company ‘betrayed the trust’ of millions of people in a mea culpa on September 21. He announced his decision to resign two days later.

Winterkorn must have known his position was untenable after Volkswagen’s stock lost around a third of its value in two days. According to Bloomberg, even the German government pressed for ‘quick action.’

The company has already announced it will allocate $7.3 billion to deal with the costs of the emissions scandal. Whether this will be prove to be sufficient to pay for all the consequences remains to be seen. It is clear, however, that Volkswagen’s reputation as a manufacturer of ‘clean diesel’ vehicles has taken a devastating hit.

Damage Report - diesel vehicles could result in lower demand for diesel

The Volkswagen scandal is not just likely to cause damage upon the company itself, it might also cause damage to the rest of the industry, including parts manufacturers, and other car makers.

There is also the possibility that other car builders may have also manipulated tests.

Maybe even more important is the damage done to the image of diesel as a ‘cleaner’ fuel.

This image was shaped back in the 1990’s as Volkswagen, along with other European car makers, started to pursue diesel innovations as the EU pressed to reduce CO2 emissions. It appears that regulators have opened their eyes to the fact that diesel is still not as clean as unleaded gasoline.

It is too early to predict exactly what the fallout will be for the automotive industry, but with the clean air debate intensifying globally, U.S. and E.U regulators will now seek to impose stricter emission test guidelines.

Now that diesel is not as clean as it appeared and stricter emissions tests and perhaps even stricter regulation can be expected, one has to ask; does this mean the end of diesel for light vehicles? Related: Is This The Next Great Threat To The Oil Industry?

“Yes, it probably does,” Max Warburton, senior automotive industry analyst at Bernstein Research, said in an interview with the Wall Street Journal.

This is not just alarming for the automotive industry, but could also lead to a structural demand shift in fuel products.

That shift could not have come at a worse time for diesel.

As can be seen in the below chart, fuel stockpiles are building worldwide and ultralow-sulfur diesel futures are sinking back to yearly lows. In addition, the sales of light vehicles run on diesel is also tapering off in the U.S.

(Click to enlarge)

This second chart indicates that the U.S. diesel retail price is also approaching its six year low.

(Click to enlarge)

Source: Clipperdata

As can be seen from chart 1, diesel vehicle sales in the U.S. only amount to 2.7 percent of total U.S. auto sales. Diesel has had trouble penetrating the U.S. market. The VW scandal will ensure that it won’t.

Diesel has become vulnerable

In Europe however, diesel forms a much bigger part of the total amount of fuels sold. Roughly half of all European demand for refined products consists of diesel. Mainly caused by a favorable tax regime in many European countries, diesel has gradually replaced gasoline as the major road fuel, as can be seen in chart 3 below. Related: Why Oil Price Predictions Are Always Off

(Click to enlarge)

Needless to say, a change in tax policies, more stringent emissions tests and/or legislation will rapidly lead to a slowdown in new diesel vehicles sold.

And decision makers are in fact becoming more aware of hazardous emissions from diesel engines.

According to Viren Doshi, a senior partner in Strategy&, “There is increasing concern from the regulators around health issues linked to particulates in the air.”

Already, diesel’s share in new car registrations is falling in Europe’s top 5 diesel consuming countries like France, Spain and Germany as can be seen in chart 4.

Chart 5  indicates that diesel is losing the battle against gasoline. Related: Midweek Sector Update: Iran Holding Up Its End Of The Bargain, So Far

The explanation for the switch back to gasoline can be attributed to better fuel economy of gasoline run cars and the ongoing crude oil price slump which has increased the supply of unleaded gasoline.

Oliver Jakob, from oil consultancy Petromatrix merely sees the scandal at Volkswagen as a ‘’potential accelerator’’ of a trend that has already started.

Not just Volkswagen, but the downstream sector could also lose

Even though a complete collapse of global diesel demand is unexpected, European diesel demand is bound to slow down in the coming years. The negative consequences of this transition in demand will mostly be felt by the downstream sector. In recent years, new refineries in Asia, the Middle East and Europe have invested significantly in converting heavier crudes into diesel. The global supply of diesel has turned into a glut. Over the past year, refiners have done well because of the improved margins due to cheap oil. However, refiners churning out diesel could find the market increasingly hostile as their product becomes subject to heightened scrutiny.

By Tom Kool of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Bob on September 23 2015 said:
    If my memory is correct, I recall that some years ago the Europeans formed a consortium to develop the new" clean" diesel car engine, that most of the Europeans car-makers are still using. If I'm right, that also includes Mercedes highly touted Blue Tech engine, BMW, Peugot, Renault, and Fiat. Can any readers confirm?
  • Bob on September 23 2015 said:
    "Daimler introduced BlueTEC in the Mercedes E-Class (using the DeNOx system) and GL-Class (using SCR) at the 2006 North American International Auto Show. At that time, these BlueTEC vehicles were 45- and 50-state legal, respectively, in the United States (a 45-state vehicle does not meet the more stringent California emission standards that have also been adopted by four other states).

    Daimler AG has entered into an agreement with Volkswagen and Audi to share BlueTEC technology with them in order to increase the Diesel passenger-vehicle market in the United States.[1] VW introduced the Jetta Clean TDI, the Tiguan concept, and the Touareg BlueTDI as part of the BlueTec licensing program. The Jetta and the Tiguan use NOx adsorbers, while the Touareg uses a Selective Catalytic Reduction catalytic converter."--Wikipedia
  • R. L. Hails Sr. P. E. (ret.) on October 01 2015 said:
    Diesel oil is identical to home heating oil, in the US, except for a coloring additive to identify fuel not subject to road user tax. (with stiff penalties for those who cheat.)

    Moreover it is normally possible to alter the fraction of product streams of the crackers between gasoline and diesel fuel. Thus, except for change over costs, there should be little impact on fuel prices, particularly in this crude glut market.

    Thus the problem seems to be confined to diesel engine suppliers and the vehicle owners (but not necessarily limited to VW, if the NOX miss is as big as reported.)

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News