The future balance between global gasoline and diesel demand will largely be determined by the type of cars and trucks that gain popularity in China, Alon USA Energy (ALJ) Chief Executive Jeff Morris said Thursday.

Given current global demand, gasoline capacity has been overbuilt but capacity to produce diesel fuel, jet, and other distillate products has not been, said Morris, speaking to analysts during a conference call.

"The world is long gasoline, it is not long distillate," he said. The market for diesel fuel, which is often used for commercial and industrial purposes, may weaken in coming months due to the gloomy global financial environment, Morris said. However, he said diesel demand is unlikely to face the challenges that gasoline demand does.

In determining how to best build refining capacity going forward, companies must consider what type of vehicles are built in China, he said.

"Refining capacity that's being built in the world needs to match the fleet that's going to be built in China, and it's not clear to me what kind of fleet they're going to build," he said. While a European-style fleet of vehicles that use primarily diesel fuel would help reduce greenhouse gas emissions, China could produce more U.S.-style vehicles, which rely upon gasoline, he said.

In the long term, Morris said, he thinks gasoline refineries will struggle, especially if China leans toward reliance upon diesel.

Alon's Krotz Springs, La. refinery, produced 47% distillate fuel in the past quarter, and its Paramount, Calif. refinery is being configured to produce 20% gasoline and primarily diesel fuel, he said.

The company's Big Spring, Texas, refinery will continue to produce primarily gasoline to serve the niche market in central Texas.

Alon USA Energy shares recently rose 88 cents, or 10.3%, to $9.43.

(Dow Jones, Nov 6, 2008)