Diesel Average Rises to $3.074 in Third Straight Gain

This story appears in the April 26 print edition of Transport Topics.

The average price of retail diesel in the United States rose a half-cent last week to $3.074 a gallon, the Department of Energy reported, slowing a two-month run-up that has sent diesel over $3 for the first time since November 2008.

Commercial trucking’s main fuel has risen 27.7 cents over the past nine weeks, DOE said after its April 19 survey of fueling stations. Diesel is now 85.3 cents higher than a year earlier.

DOE also reported the average price of retail gasoline was $2.86 last week, up 0.2 cent. Gasoline is now 25 cents higher than it was Feb. 15 and 80.1 cents above its level for the corresponding week of 2009.

At 21.1 cents, the current price gap between diesel and gasoline is now at its widest since Feb. 23, 2009.

Andrew Reed, an analyst who specializes in distillate oil markets at Energy Security Analysis Inc., said the recent earthquake in Chile has played a role in that gap.

“One of [Chile’s] refineries is still not up and running, so it’s not able to produce as much distillate, and probably with the earthquake . . . there’s a lot of diesel being used for power generation,” Reed said.

As a result, South America, which is heading into its winter season, has been importing increased amounts of distillate, much of it from the United States.

For Scott Barnett, who with his parents owns R.E. Barnett and Sons Trucking in Tucson, Ariz., fuel surcharges cannot catch up to rising prices at the pump.

“Every week that fuel goes up, my fuel surcharge is based on the previous week’s” fuel prices, said Barnett. “So as fuel goes up, I’m actually losing money on my freight for a week.”

To cope with the higher costs, his firm attempts to run only customer freight, rather than brokered freight that eats up fuel without surcharges.

“So you stay in the lanes where all of your customers are, something that everybody’s gotten a lot more savvy about in the last year or two,” said Barnett. “You want to stay in your profit center.”

One “silver lining” in having weathered the worst of the recession, Barnett said, is that drivers have become more aware about fuel efficiency.

“All your drivers you have left are the best of the drivers out there, and they have the company’s best interest in mind,” Barnett said, “so, they’re not sitting with a truck running while they’re in the rest area.”

Years ago, Triad Transport Inc., headquartered in McAlester, Okla., made its drivers the first line of defense against rising fuel costs, said co-founder and president John Titsworth.

“We have a fuel bonus system for our drivers. We set benchmark minimums and, if they attain above that,” he said, “then we pay them a bonus based on what the benchmark is. The more above that benchmark, the better their bonus is.”

The firm works at educating its drivers on the bonus program, stressing that they can make more money by how well they drive, said Titsworth.

“. . . We had one driver who made an extra $2,000 or $3,000 in a quarter,” he said.

Looking ahead, oil market analysts said they are uncertain what to expect.

The current picture is “pretty muddled,” said Tom Kloza, chief oil analyst at Oil Price Information Service.

“Distillate stocks, which include diesel and heating oil, they’re as high as they’ve ever been for the third week of April,” Kloza said.

Distillate stocks were at 149 million barrels on April 16, according to DOE, up from 105 million barrels two years ago.

“I think the economy is still too fragile, and I think the [distillate] supply is still sloppy enough worldwide that it’s going to be difficult for prices to move much beyond what we see in the next couple weeks,” Kloza said.

Chris Barber, a crude oil market specialist at ESAI, said that diesel prices are still tied to the price of crude oil, which is up since the first of the year but appears to be at a ceiling.

Crude oil futures on the New York Mercantile Exchange closed April 22 at $83.70 a barrel. That price is up from $79.36 at the end of 2009, though that price was up $10 from just two weeks earlier in December.

“It was treading water sort of for most of April,” Barber said. “It was sort of restrained around $83 . . . trading at a relatively narrow range, then it broke above $83.”

Better unemployment numbers were released, and the Dow topped 11,000, Barber said, which caused crude prices to spike.

“[Crude] reached above $86 and . . . it’s sort of coming back down, slowly falling back down,” Barber said.