Diesel Average Drops 2.1¢ to $3.635

By Michael G. Malloy, Staff Reporter

This story appears in the Nov. 3 print edition of Transport Topics.

The U.S. diesel average fell 2.1 cents to $3.635 a gallon last week, the lowest price in 3½ years, the Department of Energy reported.

Trucking’s main fuel has fallen almost 30 cents since June and is the lowest since it was $3.573 on Feb. 21, 2011, when prices were rising as the economy emerged from the recession. It is also 23.5 cents below its year-ago level, DOE said Oct. 27, after its weekly survey of filling stations.

DOE also said the retail gasoline price continued to fall, dropping 6.4 cents to $3.056. The fuel, which is 23.8 cents less than a year ago, has plunged 65 cents since June and is at its lowest level since Dec. 27, 2010.

One fuel analyst said that, with higher U.S. and global crude oil production, lower prices are likely to remain on pumps for the foreseeable future.

“In the big picture, we’re seeing a new era of lower prices for diesel and gasoline, and I think it’s going to continue,” said Phil Flynn, senior market analyst with Price Futures Group in Chicago.

“We’re the best shape in probably 30 years,” Flynn told Transport Topics. “While diesel prices may come up seasonally a little because of the cold weather, the outlook is better than it has been in a long time. We’re producing more oil, more gas and more diesel, so I’m very optimistic.”

Crude oil futures finished Oct. 27 at $81 a barrel on the New York Mercantile Exchange, near the two-year low closing price of $80.52 a week earlier. Oil has plunged more than $26 since June.

Diesel’s average price fell in four of five DOE regions, the exception being the Midwest, where it ticked up a half-cent. Flynn attributed that bump to a regional refinery outage and a late farm harvest that boosted demand.

A Midwestern trucking executive said last week that recent lower prices have been a welcome relief after higher prices earlier this year.

Regional flatbed carrier Four Star Transportation Co. in Melvindale, Michigan, whose 125 trucks run about 9 million miles a year, deadheads about 30% of the time,  President Mike Leoni said.

“That’s close to 3 million miles. If we’re paying 26 cents less this year, and we’re getting 6 mpg, that’s 450,000 gallons,” which translates to about $115,000 in savings, Leoni said.

Four Star, which has about 80% company drivers, began paying its drivers fuel-efficiency bonuses about a year ago, in a program that’s also tied to things such

as cargo claims and safety issues, he said.

It also uses 12,000-gallon onsite fuel tanks, which save the fleet about 25 cents a gallon versus retail prices and is “moving in that direction” of buying newer trucks to boost fuel economy, he said.

“We had a very difficult first quarter, with the weather and higher fuel prices,” he told TT. “We ran a lot less miles and paid the same for fuel [than] we did the third quarter.”

Meanwhile, a report released last week said that higher vehicle efficiencies and the growing use of compressed natural gas in heavy-duty trucks will lead to a decline in U.S. diesel demand beginning in 2016.

Those changes will “more than offset a substantial increase in the number of diesel-powered light-duty vehicles in the market,” according to the Oct. 29 report commissioned by the Fuels Institute and funded by Natso Foundation, the research subsidiary of Natso Inc.

U.S. diesel demand is expected to drop 12.5% from a near-term peak of about 4 million barrels per day in 2015 to 3.5 million bbd in 2030, the report said.

Demand will be strongly affected by new fueling options, shifts in fuel usage and improved efficiencies, and light- and heavy-duty trucking and industrial applications, the report said.

“Changing consumer demand for diesel fuel will have a significant effect on fuel retailers and the U.S. economy,” said Natso President Lisa Mullings. “This report will help truck stops . . . develop a sound strategy for optimizing these market changes to lead the fuel retailing industry into the future.”

DOE also said last week that distillate inventories, which include diesel and heating oil, fell by 5.3 million barrels for the week ended Oct. 24, a steeper drop than the 1.4 million barrel draw that analysts had forecast, Bloomberg News reported.

Oil prices rose almost 80 cents after that Oct. 29 report to finish at $82.20 a barrel. Heating-oil futures, also traded on the Nymex, rose about a nickel after the report.

Flynn said the modest upturn in oil prices won’t “be dramatic and will be a short-term situation. I think [fuel] supplies are going to build back up, but it did catch the market a little bit off-guard.”