Diesel Average Declines 1.3¢ from Two-Year High to $3.171

This story appears in the Nov. 29 print edition of Transport Topics.

The average price of diesel fuel dipped 1.3 cents last week to $3.171 a gallon, below the two-year high of the previous week, despite stronger U.S. and global demand, the Department of Energy said Nov. 22.

The dip followed a 6.8-cent jump the previous week, which was the biggest in more than six months. Despite the decline, diesel is still 38.4 cents higher than the corresponding week a year ago.

Gasoline also declined modestly, dropping 1.6 cents to $2.876 a gallon, leaving it 23.7 cents higher than a year ago, DOE said following its weekly survey of filling stations.

The downturns paralleled recent declines in crude oil prices, which Bloomberg News attributed to a stronger U.S. dollar and concerns about European governmental debt.

But diesel demand has been rising with stronger trucking activity both in the United States and worldwide, one analyst said last week, which could lead to higher prices.

“Diesel will be the biggest driver of demand going forward for crude, particularly in emerging markets as they industrialize.” said Tom Kloza, chief oil analyst at the Oil Price Information Service, Wall, N.J.

Despite the welcome decline last week, one trucker said he expects prices to rise 5 cents to 7 cents per gallon this winter.

“I look for it to go up before the winter, before the seasonal crunch is over,” said Todd Panter, general manager of North Georgia Freight Inc., a truckload carrier based in Dahlonega, Ga.

Diesel traditionally competes with heating oil demand in the winter, which can boost its price in cold-weather months because both are distillate fuels.

DOE figures showed diesel prices slipped 1.8 cents in the Lower Atlantic subregion of the East Coast — the biggest regional decline for the week — to $3.115 a gallon.

That decline contrasted with New England’s half-cent gain to $3.235, and the Central Atlantic’s $3.293 average, trailing only the prices on the West Coast as the nation’s highest.

“The price up in the Northeast has just been ridiculous,” Panter said Nov. 23, adding that 32-tractor North Georgia Freight, which runs nationwide, bases its fuel surcharges on DOE’s weekly regional prices, “bringing them a little closer to reality.”

Other signs of higher demand included American Trucking Associations’ monthly truck tonnage report released last week, which showed a 6% jump in October from a year ago (click here for related story).

And just before the early November diesel and crude spikes, October deliveries of ultra-low-sulfur diesel had jumped 8.4% from a year ago to meet surging demand, the American Petroleum Institute said Nov. 19.

Deliveries averaged 3.19 million barrels per day for the month, with ULSD supplies rising by more than twice that of overall distillates because of higher trucking demand, API said.

“The October data suggest continued economic recovery, although still on a small scale,” API Chief Economist John Felmy said in a statement. “We will have to see how recent petroleum price increases factor into consumer confidence and demand, moving forward.”

Gasoline demand also rose in October, with deliveries averaging 9.04 million barrels per day, 1.4% higher than the previous month and 0.6% higher than October 2009, API said.

Investors also have increased their speculation in petroleum markets over the past few months and that, coupled with stronger global diesel demand, has led to higher U.S. diesel exports, OPIS’ Kloza said.

To meet higher world demand, the United States has been exporting refined diesel to Europe, Asia and South America, he said.

The United States has been a “huge exporter this year. . . . We export about 700,000 barrels of diesel each day,” Kloza said.

Because of the strong global market, refiners have been able to sell diesel for about $15 a barrel over the cost of crude, yielding a much higher profit to refiners than for gasoline, Kloza said.

And in both the United States and globally, refiners are paying attention to the need for more diesel output, Bloomberg reported.

After hitting a two-year high of $87.81 in mid-November, crude futures fell for a third straight trading day Nov. 23 to close at $81.25 a barrel on the New York Mercantile Exchange, Bloomberg reported.

Exxon Mobil Corp. is spending more than $1 billion to boost diesel production at U.S. refineries in Baytown, Texas, and Baton Rouge, La., and in Antwerp, Belgium, to upgrade capacity at the three plants by about 140,000 barrels a day, Bloomberg reported.

Exxon, the world’s largest oil company, also plans to add capacity at its Singapore refining complex to boost ULSD output there by 56,600 barrels a day, or about 2% of China’s demand, Bloomberg said.