Diesel Climbs to 2016 High
This story appears in the May 9 print edition of Transport Topics.
The U.S. average diesel price rose for the 10th time in 11 weeks, this time by 6.8 cents a gallon to $2.266 — the highest price since just before Christmas, the Department of Energy reported May 2.
The price for trucking’s main fuel has added 28.6 cents, or 14.4%, over those 11 weeks, but is still cheaper than a year ago by 58.8 cents. Diesel was at $2.284 on Dec. 21, the last time it was higher than the most recent level.
The average retail gasoline price rose more sharply, by 7.8 cents a gallon to $2.24 on May 2, DOE’s Energy Information Administration said. For gasoline, it also was the 10th increase in 11 weeks.
Gasoline’s price has surged by 51.6 cents, or 29.9%, over 11 weeks, but it is still less expensive than last year at this time — by 42.4 cents a gallon.
Diesel is traditionally more expensive than gasoline, but now the premium is just 2.6 cents a gallon. On Feb. 15, diesel was more costly by 25.6 cents a gallon.
While both diesel and gasoline have been rising, they are doing so after falling to uncommonly low price points Feb. 15. Diesel fell to $1.98 a gallon, the lowest in more than 11 years, and gasoline was $1.724, the lowest in more than seven years.
An oil analyst said there are two main reasons diesel has increased more slowly than gasoline: time of year and relative demand for the two products.
“Gasoline demand has been incredible. This could be a record year for gasoline,” said Denton Cinquegrana, chief oil analyst for the Oil Price Information Service. In contrast, the demand for distillate fuels, mainly diesel, has been stable.
In a May 4 report from EIA, the rate for U.S. gasoline usage was pegged at 9.47 million barrels a day for the four weeks ended April 29, or 5.8% more than a year ago.
For distillates, the year-over-year gain was 4.2% to 4.05 million barrels a day.
Cinquegrana also said refineries have been switching over to the summer blend of gasoline and building stocks for summer driving. In contrast, he noted, the winter demand for heating oil was not strong this year and is now over, leaving the nation with strong distillate supplies.
Greg Skoog, president of Mississippi Furniture Xpress in Hildebran, North Carolina, said his hunch was that $1.98-a-gallon could not last.
“We’ve been mentally prepared for an uptick,” said Skoog, whose less-than-truckload carrier has 106 tractors. MFX usually buys about 7,500 gallons of diesel a week to fill the storage tank at his terminal. Drivers supplement that fuel with purchases at truck stops.
The long price slide that appears to have ended in February was very helpful for MFX’s cash flow, he said, adding that so far, fuel prices have not jumped up too rapidly, so that has helped.
His shippers — furniture makers and dealers — actually called with more complaints during the price decline rather than the recent increase, he said.
“We didn’t get a lot of calls until fuel surcharges started going down as they did. They said we shouldn’t be having one at all, but when the price starts creeping up, then they expect it,” Skoog said.
MFX bases its fuel surcharge on EIA’s national average and sends out e-mails of the change every Tuesday to about 200 customers, Skoog said.
American Trucking Associations says U.S. heavy-duty trucks used about 38.4 billion gallons of diesel in 2014.
Crude oil has also been on the rise since falling to $26.21 a barrel on Feb. 11, the lowest New York Mercantile Exchange close since May 2003. Crude rose to $46.03 a barrel on April 28, the highest price since Nov. 4, but then re- treated to a close of $44.32 on May 5.
The Nymex prices have reacted to U.S. crude production, which peaked on June 5 last year at 9.61 million barrels a day, EIA said. That helped drive prices down to the February low.
By the week ended April 29, production dropped to 8.82 million barrels a day, allowing prices to rise some. The most recent level is similar to U.S. oil production in early September 2014.
OPIS’ Cinquegrana said the world oil supply is still more robust than the demand for it. Middle Eastern producers Saudi Arabia, Iraq and Iran are all producing vigorously, he said, whereas “there is no breakneck speed on global [gross domestic product] growth.”
Estimates that crude prices could hit $60 to $80 a barrel this year are “overly optimistic,” Cinquegrana said. A range of $50 to $55 is more probable, he said. If that prediction holds, it means that most of this year’s oil price increases have occurred already.
