Diesel Average Jumps 7.6¢ to $2.832 a Gallon

This story appears in the March 1 print edition of Transport Topics.

The average price of diesel around the nation jumped 7.6 cents a gallon to $2.832, as fuel reversed a five-week downward trend, the Department of Energy reported last week.

The jump reflected a significant increase in crude oil prices earlier last month and eliminated the declines of the past three weeks, but still left the price of trucking’s main fuel below the 12-month high set Jan. 11, when it cost $2.879.

One year ago, the average diesel price was just $2.13, meaning it is now 33% more expensive.

The average price of regular gasoline also increased, rising 4.7 cents a gallon to $2.655 on Feb. 22, said DOE’s Energy Information Administration. Gasoline also had hit a 12-month high on Jan. 11, when it averaged $2.751. A year ago, gas cost $1.909 on average.

“These have been fairly minor retail moves lately, and they’re all linked to supply costs, which have been inching up,” said Bruce Gress, director of petroleum risk management for Pilot Travel Centers.

In the 17 days from Feb. 5 to Feb. 22, the price of crude oil on the New York Mercantile Exchange rose 12.6% to $80.16 a barrel. The retail prices measured by EIA are now reflecting that earlier movement.

“Retail prices lag behind,” Gress said, adding that $80 a barrel is hard to justify based on high stockpiles of ultra-low-sulfur distillate and crude oil, plus the abundance of unused refinery capacity.

“Right now, because of the recession, there is excess capacity” of oil, Energy Secretary Steven Chu said in a Bloomberg News story from Abu Dhabi last week. Chu was in the United Arab Emirates capital as part of a trip to Persian Gulf nations belonging to the Organization of Petroleum Exporting Countries, which supplies 40% of the world’s oil.

In the days following the surge to $80, the price of crude backed away, closing at $78.17 on Feb. 25.

While current diesel prices are a relief compared with the extraordinary levels of mid-2008 when they hit $4.764 a gallon, fleet managers cannot afford to be indifferent even with prices below $3, said Bob Goldberg, chief financial officer of Gordon Trucking Inc., Pacific, Wash.

“Given the industry’s margins, there is no such thing as an inconsequential cost. Fuel is one of the three biggest costs for a carrier” after labor and equipment, Goldberg said. He added that freight rates and shipping volumes that fell before and during the recession have not yet recovered.

Goldberg said that Gordon, a dry van and refrigerated truckload carrier with 1,500 tractors, has invested heavily in auxiliary power units and fuel optimization software and adjusted downward its maximum governed speed.

Pilot’s Gress said oil is peculiar in that not only does it face supply and demand fundamentals relative to its uses as a commodity, but it also serves as an investment vehicle. He said an example of this complexity is that oil prices dipped when the U.S. dollar rose in value after the euro dropped, because of financial uncertainty in Greece.

“The current state of — and medium-term expectations of — U.S. and global [economic] growth is the single most important factor in terms of crude prices,” economic consultant Jason Schenker, president of Prestige Economics of Austin, Texas, told Bloomberg, arguing that optimism can prop up oil prices.

In a Feb. 24 report, EIA said there was strong availability for distillate, crude oil and gasoline.

The U.S. stockpile of ultra-low-sulfur distillate, the basis of diesel, was 94.9 million barrels on Feb. 19, down from an uncommonly high level of 100.1 million barrels on Jan. 22. A year ago, though, the inventory was 86.6 million barrels.

The U.S. crude oil stockpile was 337.5 million barrels on Feb. 19, the highest level since the day after Thanksgiving.

Gasoline stocks dipped slightly from Feb. 12 to Feb. 19, but the 231.2 million barrels in inventory on the 19th is the second-highest level since March 2008.

Among the nation’s regions, New England had the highest average diesel prices, at $3.011 a gallon, the only region to top the $3 mark.

The Gulf Coast and Midwest states had the least expensive fuel at $2.793 and $2.794 a gallon, respectively.