March 10, 2008 7:45 AM, EDT

Diesel Again Hits Record, at $3.658

Week’s 10.6¢ Gain Follows Previous Week’s 15.6¢

By Frederick Kiel, Staff Reporter
This story appears in the March 10 print edition of Transport Topics.
Retail diesel prices jumped another 10.6 cents a gallon last week to a new record national average of $3.658; diesel has now risen 37.8 cents a gallon over the past three weeks, according to the Department of Energy.
Meanwhile, the average price for a gallon of gasoline rose 3.2 cents to $3.162 last week.
The fuel increases came as crude oil prices were setting new record closing prices last week, breaking $104 a barrel on March 5.
“Two main forces are pushing diesel higher,” Douglas MacIntyre, an analyst at DOE’s Energy Information Administration, said. “Crude oil prices are continuing to rise, from a low of $87 a barrel in early February to over $100 a barrel now, and both U.S. and international demand for diesel are very high, while supplies are low.”
MacIntyre said retail diesel prices rise about 24 cents a gallon for every $10 jump in the price of a barrel of crude petroleum.
DOE’s weekly survey of fueling stations found that diesel prices rose 13.2 cents to $3.825 a gallon in the central Atlantic states, 10.3 cents to $3.813 in New England and 13.1 cents in California to $3.803.
The average retail cost of diesel is now $1.032 a gallon higher than it was in the comparable week a year ago, according to the DOE statistics.
MacIntyre said the price of diesel is tied closely to heating oil, which has risen “more this year than usual because the winter has been colder than normal, especially in the Northeast.”
“In addition, the global market for diesel has become huge,” MacIntyre said. “The fuel markets in Europe, India and China, all very fast-growing economies, are very much centered around diesel demand, like the U.S. is around gasoline, and supplies are low everywhere.”
People in trucking agreed that the short-term outlook was grim.
“Prices are squeezing truckers pretty good,” Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, told Transport Topics. “There’s not much freight demand and record-high diesel prices, and that’s not a good combination for an economically viable operation.”
“I talked this week to a company owner who works with other small firms,” Spencer told TT, “and he said driver expenses have always been their largest single cost, but now they’re paying $50 million a year for fuel and $25 million for drivers.”
Spencer said most trucking firms get surcharges that cover much of the increase, but he added, “Truckers who find loads through brokers are getting into the most trouble.” When the economy is soft, brokers try to cut fuel surcharges, he said, and the only thing a trucker can do is to refuse the load.
Even a major carrier such as Knight Transportation, No. 40 on the Transport Topics 100 list of the largest U.S. and Canadian for-hire carriers, has problems winning new fuel surcharges.
“We were able to institute fuel surcharges when freight was tighter a while ago, but they’ve come under fire from customers now because of the imbalance between freight demand and trucking supply,” David Williams, Knight’s vice president of equipment and maintenance, told TT.
“Today, it’s much more difficult to get full fuel surcharges on new contracts,” Williams said.
L.E. “Tripp” Dunman III, managing director of the fuel surcharge group at FCStone Trading, Kansas City, Mo., agreed with MacIntyre’s price outlook.
“First off, retail diesel pump prices follow the wholesale heating oil market,” Dunman told TT. “This winter has not been mild, unlike the past two or three winters.”
“Also, international demand is very robust right now,” Dunman said. “
Analysts held out little hope that prices will come down anytime soon, if ever.
“As far as diesel prices for the future, any time you establish new highs, if they continue to hold, you will expect to see newer highs,” Dunman said. “Diesel has risen nearly 40 cents since February, and that is not a long time frame.”
Crude oil on the New York Mercantile Exchange closed above $100 a barrel for the first time on Feb. 19, and it closed above $104 on March 5 after the oil cartel refused to increase petroleum output at a meeting in Vienna.

Diesel Again Hits Record, at $3.658

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