Diesel Average Rises 5.6¢ to $2.445 as Crude Reaches 15-Month High

This story appears in the Oct. 17 print edition of Transport Topics.

The U.S. average retail price of diesel jumped 5.6 cents to $2.445 a gallon, according to the Department of Energy, as oil hit its highest price in more than a year on expectations of reduced production.

The increase in diesel, trucking’s main fuel, was the largest since a 6-cent spike Aug. 22.

It rose in all regions of the country but is 11.1 cents cheaper than a year ago, when the price was $2.556, DOE said after its survey of fueling stations Oct. 10.

Crude oil futures on the New York Mercantile Exchange closed Oct. 10 at $51.35 per barrel. That was the highest price since July 10, 2015, when it was $52.74. It slipped to $50.18 on Oct. 12.

Dennis Perna, chief financial officer at K-Limited Carrier Ltd., told Transport Topics the company’s fleet of 110 Class 8 tractors uses about 100,000 gallons of diesel a month. The tank truck carrier is based in Toledo, Ohio.

“Eventually, trucking companies have to pass that along,” Perna said, referring to diesel’s latest price spike. For trucking, the issue lies with the pace of the reimbursement from a surcharge, he said.

“That’s not as fast as it needs to be. … We bear a price for that,” Perna said.

He follows the Midwest diesel average, which rose 6.1 cents to $2.417.

“Fuel surcharges change over a different rate of time, [diesel price] averages change over a rate time, and typically, as it is going up, that impact is hitting us faster than you are receiving [reimbursement] back,” he said.

He added: “Honestly, these days, there is a lot of pressure to hold that as much as possible. But as that price starts to go up, the fuel surcharges will start to go up.”

However, there is more to be concerned with regarding diesel than just its pricing, one supplier of fuel additives said.

“The switch to ultra-low-sulfur diesel and the associated fuel blends have brought a host of problems to diesel fuel users and distributors,” Steve Muth, chief chemist for Wheeling, Illinois-based Penray Inc., told TT.

“These include instability from black fuel or asphaltenes, filter plugging, equipment corrosion and cold weather operability problems,” Muth said.

Hydrogenation removes almost all of the sulfur from the fuel but also removes some of the cleaning agents, lubricants and solvents blended into diesel fuel, he said.

“Add with contaminants such as water, dust and dirt particles and bacteria or other microbes, you are guaranteed a high incidence of costly repairs and unscheduled downtime,” he said.

The preventive measure is to add appropriate chemical additives periodically “to replace those lost in the hydrogenation process,” Muth said.

The U.S. regular gasoline average price rose 2.7 cents to $2.272 a gallon, 6.5 cents cheaper than a year ago, DOE’s Energy Information Administration reported.

Regional gasoline prices, compared with a week earlier, rose everywhere but on the West Coast, which was lower by 0.04 cent. And they are forecast to average $2.12 a gallon in 2016 and $2.26 in 2017, EIA said in its latest Short-Term Energy Outlook.

Meanwhile, OPEC has agreed to cut its supply of oil to between 32.5 million and 33 million barrels a day, with details to be set by the end of November, according to the International Energy Agency.

World oil production of 97.2 million barrels a day was up 200,000 barrels from last year due to strong OPEC growth, IEA said in its September report.

Russia’s two largest oil producers said Oct. 11 that they would comply with any government instruction to limit production, after President Vladimir Putin had said earlier that his nation would back a deal with OPEC. An output freeze or cut is probably the only proper move to preserve stability in the global energy market, Putin said Sept. 10 at the World Energy Congress in Istanbul, according to Bloomberg News.

By the end of the year, colder weather and rising oil prices could combine to lift diesel prices about 9% higher than this week’s price, one analyst said.

“I am predicting a worse-case scenario for diesel prices to rise by 22 cents a gallon from where they are now by the end of the year,” Phil Flynn, senior market analyst of Chicago-based Price Futures Group, told TT. “But that has to be in a perfect world, where oil gets to $60 a barrel, which I think it could, and we have a cold winter.”

He added that it is not going to be welcomed by truckers, but the prices are not going to get as outrageous as they were a few years ago.