Diesel Average Rises 2.1¢

This story appears in the May 20 print edition of Transport Topics.

U.S. retail diesel prices rose last week for the first time in nearly three months, with the national average creeping up 2.1 cents to $3.866, even as crude prices are dropping and petroleum product inventories are bulging.

The May 13 report from the Department of Energy showed the first increase since Feb. 25, when diesel hit its 2013 high of $4.159 per gallon.

Diesel once again rose in DOE’s Midwest region, for a second straight week, gaining 4.1 cents to $3.909 a gallon. It gained 2.9 cents the week before.

Gasoline prices increased for the second week, jumping 6.5 cents to a national average of $3.603, DOE said.

Meanwhile, crude slipped nearly $1 per barrel last week, pushed down at one point nearly $4 per barrel after DOE’s May 15 report that inventories of diesel and gasoline rose. Crude closed at $95.16 on May 16 on the New York Mercantile Exchange.

Last week’s increase and stubbornly high prices are disturbing truckers such as Keith Tuttle, CEO of Motor Carrier Service Inc. in Northwood, Ohio.

 “We’re absolutely mystified,” Tuttle told Transport Topics on May 15. “We keep hearing that crude production is way up and the price per barrel has not gone up, but today I drove by a truck stop and I saw that diesel fuel is still up around $4 per gallon.

“It isn’t making sense to a lot of us,” Tuttle said. The United States is “exporting more crude than we ever have. We are importing less oil. We are producing more oil, but we are not seeing any traction in terms of much lower diesel prices.”

Stephen Schork, president of the energy analytics firm Schork Group, told TT the price of diesel should resume its decline in the next two weeks.

“Diesel prices are going up on the retail market, but they are beginning to flatten out in the wholesale market,” Schork explained, predicting diesel will fall again within two weeks.

He was reluctant to gauge the amount, only saying “not by much.”

But Mike Lynch, president of consulting firm Strategic Energy & Economic Research, gauged the potential decline at as much as 40 cents a gallon in the weeks ahead.

“There is a decent chance we are going to see weaker prices going into the summer because of rising supplies around the world and economic weakness in Europe and China,” Lynch told TT. “We are in an unusual oversupply situation. We have reached the point where crude inventories are at the highest level in 30 years.”

Lynch believes that West Texas Intermediate crude prices that dropped close to $90 per barrel last week, could reach about $80 this summer unless Saudi Arabia cuts production.

A drop in Saudi production appears unlikely, since the OPEC oil cartel has raised April output to the highest level since November, the group announced May 10. Saudi Arabia is OPEC’s largest member by barrels pumped, accounting for about 30% of output.

After last week’s changes, diesel now costs 26.3 cents per gallon more than gas, the smallest price differential since October 2012. Last year at this time, average prices were $4.004 for diesel and $3.754 for gas.

So far this year, diesel prices have fallen 1.2%, while gasoline has climbed 9.2%.

Diesel also has been more stable on a year-to-year basis, remaining above $4 per gallon for eight weeks in 2012 and 12 weeks during the same period of last year.

“Because fuel has been not quite as volatile in the first part of this year, that has given us the ability to set baselines,” Phillip Holliday, executive vice president of sales at Nebraska Transport Co. in Scottsbluff, Neb., told TT. “Prices remain high, so they are still a concern.”

In fact, Holliday said 2013 price behavior also is positive because diesel hasn’t come close to the $4.50 per gallon mark that Nebraska Transport feared might be coming in 2013.

Holliday added that persistent high fuel prices prompted the company to add trailer skirts and idle reduction to its 150-tractor fleet.

Tuttle also stressed technology and conservation, comparing diesel consumption at his company to fine wine by saying “we sip it instead of gulping it.”

That’s accomplished by monitoring drivers’ fuel use weekly and providing incentives for conservation.

Improving fuel efficiency 0.1% per mile can save $1,000 a year for a truck that runs 10,000 miles monthly, he said. Those potential savings have prompted his truckload fleet to use wide-based tires and other aerodynamic devices.

Diesel has been propped up by another factor, Schork said.

This month, NYMEX changed the way diesel futures contracts were calculated. Those contracts now are solely based on more expensive ultra-low-sulfur diesel. Previously, the contract could be delivered with higher sulfur products that are less expensive.