Crude Oil Nears $90 a Barrel; Diesel Fuel Inches Up to $3.039

By Eric Miller, Staff Reporter
This story appears in the Oct. 22 print edition of Transport Topics.
The national average retail price of diesel fuel rose 0.4 cent to $3.039 a gallon last week, the Department of Energy reported, and analysts were predicting additional increases as crude oil prices neared an un-precedented $90 a barrel.
On Oct. 18, crude oil on the New York Mercantile Exchange rose high as $89.78 a barrel and closed at $89.47 after Turkish lawmakers voted to allow the use of military force against Kurdish rebels in northern Iraq. In addition, traders remain concerned about a potential supply crunch this winter, according to news reports.

The close was the highest price since trading began in 1983. The price has risen about $10 a barrel in 10 days and about 55% from a year earlier.
Heating oil contracts — often the basis for hedging diesel fuel — also spiked last week to a historic high. On Oct. 18, they closed at $2.349 a gallon, up from $2.159 on Oct. 8.
Phil Flynn, a senior analyst with Alaron Trading Corp. in Chicago, said the crude spike will likely lead to a “correction” for the price of diesel.
“Inventories of distillates are still below what they were a year ago,” Flynn told Transport Topics. “I think as we get closer to heating season, the pressure is really going to be to the upside when it comes to price.”
Flynn said he also believed higher diesel prices are on the horizon because of the focus this year on gasoline production, which “came at the expense of distillate fuels.”
Laurie Falter, an industry economist with DOE’s Energy Information Administration, told TT that record crude prices likely will hit diesel fuel consumers hardest as demand for heating oil increases, going into the winter months.
“Right now, I would say that going into Thanksgiving, we probably will see diesel prices increase somewhere between 2 to 5 cents, conservatively,” Falter said.
The surge in oil prices last week overshadowed the small increase in the diesel average, which DOE reported following its Oct. 15 survey of fueling stations. Despite the prior week 1.3-cent decline, diesel is up 17.6 cents a gallon since Aug. 27 and 53.6 cents higher than one year earlier.
Trucking burns an estimated 730 million gallons of diesel each week, translating into $391.3 million in higher diesel expenses last week than a year earlier.
Diesel continued to rise at a much faster pace along DOE’s West Coast grouping of states, where prices surged another 6.2 cents to $3.229 a gallon, following a 7.7-cent gain the prior week. Prices rose by 3 cents last week in the Rocky Mountain region but declined — less than a penny — in the East and Midwest, according to DOE figures.
One reason for the increase in California and the West Coast was refinery production issues, said David Hackett, president of Stillwater Associates, Irvine, Calif.
“Some of the refineries that are generally the bigger diesel producers have had unscheduled maintenance in late September and October,” Hackett told TT. “That led to some shortfalls in supply, and that’s why prices have been a bit more volatile in California.”
Joe Sparano, president of the Western States Petroleum Association, noted that higher taxes for diesel in California are part of the reason diesel is generally more expensive in the West. For instance, taxes on diesel in California as of July were 69.4 cents, while the U.S. average was only 52.9 cents, he said.
DOE also said last week the average price of regular retail gasoline declined last week by 0.8 cents, to an average of $2.762 cents a gallon. Gasoline prices have increased 53.6 cents since one year ago but have declined 45.6 cents since May 21, when gasoline cost $3.218.
Rising fuel costs, coupled with soft freight tonnage this year, have challenged carriers’ bottom lines. While fuel surcharges have become a staple of the industry, rising fuel costs have forced carriers to find other ways to trim costs.
“We shop,” said Karen Vanney, vice president of finance for medium-size regional less-than-truckload carrier Lakeville Motor Express, Roseville, Minn. “When you only get six miles to the gallon, you’ve got to.”
Vanney said her company has its own 15,000 gallon tank, which allows it to buy in bulk.
“We’ve got two or three vendors here that we get quotes from every morning,” she said. “With 7,500 gallons, if you’re talking two, three, four cents a gallon, it all adds up.”
“The small guys, they’re kind of stuck, because they can’t buy in bulk,” she added.