December 17, 2007 7:45 AM, EST

Diesel Average Drops 9.1¢ To $3.325

Inventories Rise, DOE Says

By Dan Leone, Staff Reporter
This story appears in the Dec. 17 print edition of Transport Topics.
Retail diesel posted its largest weekly decline of 2007, falling 9.1 cents to $3.325 a gallon following recent inventory gains and lower crude oil prices, the Department of Energy reported.
The second straight diesel decline left commercial trucking’s main fuel 11.9 cents below its record of $3.444 a gallon, recorded Nov. 26, DOE said after its Dec. 10 survey of fueling stations.
“Diesel [stockpiles are] 17% above the five-year average,” Laurie Falter, an analyst with DOE’s Energy Information Administration said. She added that “the decreases refiners are seeing in their costs for crude oil” have also helped drive fuel costs down.
Oil prices in New York were as low as $87.86 last week but surged on Dec. 12 back above $94 a barrel, after the Federal Reserve cut the target for its benchmark interest rate a quarter-point to 4.25%, reflecting investor speculation that the lower interest rates would spur economic growth and boost demand for oil, Bloomberg News reported.
Also last week, in its most recent short-term energy outlook, DOE boosted its projections for diesel’s average price in 2008 to $3.21 a gallon, 12 cents higher than the previous forecast.
Even after the two-week dip, diesel is still 52.6 cents higher than the average at the start of June, meaning that the trucking industry, which burns about 730 million gallons of diesel a week, paid an additional $384 million for its fuel last week than the week after Memorial Day.
DOE also said the average retail gasoline price fell 6.1 cents to $3 a gallon, 70.7 cents more than this time last year, and 20.4 cents more expensive than it was on Sept. 3. Trucking burns about 290 million gallons of gas a week.
To help cope with the high prices, Steven Cipich, president of Great Southern Xpress, said that his Tunnel Hill, Ga., carrier has installed speed governors on its trucks.
Cipich said that by limiting vehicles to 70 miles per hour, the carrier can “keep the speed and keep the [revolutions per minute] much lower,” boosting fuel efficiency by about 0.5 mile per gallon for each truck.
But Cipich said that the high fuel prices, particularly after run-ups in October and November that drove diesel to record levels, make it difficult for Great Southern to completely recover fuel costs with a surcharge.
“If you break it all down, [a fuel surcharge] probably represents only about 50%” of Great Southern’s fuel expenses, Cipich said.
Great Southern Xpress’ fleet of about 50 trucks burns 5,000 gallons of diesel a day, Cipich estimated.
In its weekly inventory report, DOE said that that while diesel inventories are robust, total stockpiles of distillate fuels, a category that also includes home heating oil, dipped 0.6% to 131.5 million barrels, while demand rose 4.3% to about 4.4 million barrels.
EIA’s Falter attributed the rising distillate demand and shrinking stockpiles to seasonal demand for home heating oil.
Falter also noted that, while demand for distillates continues to grow in 2007, it is doing so at a slower pace than in 2006.
As of Dec. 12, distillate demand had risen 1.7% since January. In the corresponding period in 2006, distillate demand already had increased by 2.2%, according to DOE figures.
It also said diesel would peak at about $3.31 a gallon in January, and fall as low as $3.08 in December. The agency previously had projected a 2008 high of $3.15 in January, with a floor of $2.96 in December.
DOE said that the high diesel levels will be driven largely by expensive crude oil, which the agency expects to average about $84.83 in 2008, an increase of $4.91 cents a barrel from prior projections.
Also last week, unionized drivers in Italy went on a three-day strike to protest the high cost of diesel. The strike forced Italian automobile manufacturer Fiat to halt production temporarily, according to Bloomberg.
And in the United Kingdom, a group of independent truckers, who want the government to defer an October fuel tax increase and table plans for another increase in April, said they were planning to blockade oil refineries throughout that country on Dec. 15.

Diesel Average Drops 9.1¢ To $3.325

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