Diesel Average Slips 4¢ to $3.897 a Gallon

This story appears in the Aug. 15 print edition of Transport Topics.

The average price of a gallon of U.S. diesel slid 4 cents to $3.897 last week, the Department of Energy reported, while crude oil declined along with equity markets.

It was diesel’s second straight weekly drop, totaling 5.2 cents, DOE said after its Aug. 8 survey of fueling stations. The agency also reported that gasoline slipped 3.7 cents to $3.674 a gallon, its first decline in six weeks.

Crude futures closed below $80 a barrel on the New York Mercantile Exchange on Aug. 9, the first time oil has closed below that mark since September, Bloomberg News reported.

Oil has plunged more than $20 a barrel since July 25. The decline was sparked by falling U.S. stock indexes following Standard & Poor’s downgrade of the U.S. government’s credit rating. Crude closed at $85.72 on Aug. 11.

One analyst said last week that wholesale diesel and gasoline prices dipped by 30 to 40 cents after oil’s plunge, which likely will lead to lower pump prices in coming weeks.

“Retail prices will follow wholesale,” said Tom Kloza, chief oil analyst at the Oil Price Information Service in Wall, N.J. “We’ll see diesel prices generally below $3.75 per gallon this month — perhaps as low as $3.25 to 3.50,” he told Transport Topics Aug. 8.

Kloza said the “physics of the oil market are being dictated by the actions of an angry, uncertain mob of money managers.”

Despite the diesel decline, trucking’s main fuel is still 90.6 cents more expensive than it was in the corresponding week last year, although it is down 22.7 cents from the year’s high of $4.124 on May 2.

Gasoline — which rose 13.7 cents in five straight gains before last week’s drop — is 89.1 cents higher than the corresponding week last year and 29.1 cents below the year’s high of $3.965, also set in early May.

Melanie Burnham, chief financial officer of Hercules Forwarding, said she would like to see diesel prices fall faster so the carrier can lower its fuel surcharges.

“Prices are not moving down as quickly at the pump as crude oil, although I think they should come down more quickly in reaction to the market,” she said.

Hercules, a less-than-truckload carrier with main offices in Vernon, Calif., and Hickory Hills, Ill., specializes in U.S.-Canadian cross-border shipping and operates

125 power units. With trucking and freight forwarding operations, it is both a payer and collector of fuel surcharges.

“When our fuel surcharges are 25%, 30% or more, shippers don’t like it. We’ve seen some significant increases from last year into this year,” Burnham said, adding that Hercules’ fuel surcharge is about 5% more than a year ago.

“Fuel surcharges help to insulate us, but you never get back all of what you charge,” she told TT. “Any time there’s a drop in the fuel price, it makes things better for us.”

Truckload carrier February Fourteen Inc. does everything from buy fuel in bulk to setting 65-mph speed governors and using auxiliary power units to save money on fuel, said Steve Carey, FFI’s vice president.

Adding speed governors, in part because of a requirement in some Canadian provinces, has saved the Kentwood, Mich.-based carrier money on fuel, Carey said, adding that FFI has about 60 tractors, half of which are run by owner-operators.

“We used to run at 75 mph in the West, but now we set them at 65 mph,” he said. FFI also added APUs to its fleet in 2008, when fuel prices hit record highs.

“Burning a couple of tenths [of a gallon] instead of a couple of gallons adds up,” Carey said. “Diesel has come down a little, but it seems to come down very slowly, compared to gasoline” when oil prices decline, he added.

Meanwhile, DOE reduced its 2011 diesel price forecast by

3 cents to $3.83 a gallon, though the monthly forecast’s data were compiled before the recent oil-price plunge.

Diesel will rise to $3.96 a gallon next year, a penny over the projection last month, DOE said in its monthly short-term energy outlook released Aug. 9.

It lowered its 2011 gasoline price forecast 3 cents, to $3.53 a gallon, but said gasoline will rise to $3.64 next year. Diesel averaged $2.99 a gallon last year, while gasoline averaged $2.78.

DOE also trimmed its 2011 oil-price forecast by $2, to $96 a barrel and said demand would be little changed with decreased U.S. consumption balanced by increases in emerging markets. Oil will climb to $101 a barrel in 2012, up $3 from its previous forecast, DOE said in its outlook.