Diesel Continues to Slide

This story appears in the July 8 print edition of Transport Topics.

U.S. retail diesel prices hit their lowest level in more than 11 months last week as the national average dipped 2.1 cents to $3.817 a gallon, according to data from the Department of Energy.

Meanwhile, gasoline prices fell 8.1 cents, the sharpest weekly decline of the year. The average cost of a gallon of gas was $3.496, the lowest it’s been since Jan. 28.

While diesel has now declined for six weeks in a row for a total of 7.3 cents, according to DOE’s weekly survey of fueling stations, the average price is still 16.9 cents higher than it was a year ago.

Gasoline has now fallen 15.9 cents over the past three weeks, but remains 14 cents higher than its price a year earlier.

Gasoline’s drop was driven by a 15.2-cent plunge in the DOE’s Midwest region, where the average price fell to $3.394.

Phil Flynn, an analyst at Price Futures Group in Chicago, attributed the lower fuel prices in part to the restoration of Midwest oil refineries following maintenance work and outages in recent months.

“We’re finally seeing some light at the end of the refinery tunnel,” he said. “We’ve had so many problems with the refineries, but with [BP’s] Whiting, Indiana, [facility] coming back online, that has given us hope that we’re going to see the prices that have been so high in the Midwest get back in line with the rest of the country.”

BP on July 1 announced it had completed a new crude distillation unit at the Whiting refinery, returning the facility to its processing capability of 413,000 barrels per day.

The announcement followed Exxon Mobil Corp.’s disclosure last month that it completed maintenance work at its refinery in Joliet, Ill., Bloomberg News reported.

DOE’s Midwest region saw last week’s largest decline in diesel prices, with the average price decreasing 3.2 cents to $3.815.

Gasoline’s downturn in the region has been more prominent, however.

Over the past three weeks, gas prices in the Midwest have plummeted 47.4 cents after cresting at $3.868 on June 10, according to DOE. Prior to that, the region’s average price had surged by 41 cents in the five weeks from April 15 to May 20.

“That 40-cent drop we’ve seen was the correction from the 40-cent spike we saw,” said Sean Hill, an economist at DOE’s Energy Information Administration. “Most of the outages have been resolved, and that’s just working its way into the retail prices there.”

PFG’s Flynn said the refinery outages had a much more dramatic effect on gasoline prices because supplies of diesel were more ample while summer and regional blends of gasoline were in tight supply.

Looking to the weeks ahead, Flynn said diesel’s downturn “could accelerate a little bit” because farmers have finished most of their planting and won’t be using as much diesel.

However, he cautioned that an escalation of unrest in Egypt and the Middle East could put upward pressure on crude prices.

Crude oil prices on the New York Mercantile Exchange have hovered within a range of $91 and $99 per barrel over the past two months but edged closer to the $100 mark early last week. On July 2, crude settled at $99.60, the highest closing price since May 2012.

While carriers can’t control fluctuations in diesel prices, they are still reducing fuel expenses in other ways.

Wooster Motor Ways Inc., a regional truckload carrier based in Wooster, Ohio, has installed fueling islands at each of its terminals and consequently realizes savings by purchasing diesel at bulk prices, said Paul Williams, the company’s president.

He said a diesel island costs about $180,000 to install but pays for itself in less than three years through bulk prices and the ability to sell fuel to other customers.

“Less than 12% of my fuel is purchased on the road,” said Williams, who also is chairman of the Ohio Trucking Association.

Wooster Motor Ways also uses IdleAir anti-idling equipment at truck stops where it’s available. “We figure it costs us about $30 a night to idle a truck, so if I can spend $7 on IdleAir, it’s really well worth it to do that,” he said.

Martin Burnham, president of Hercules Forwarding Inc. in Vernon, Calif., said his company has turned to technology to cut fuel consumption.

The less-than-truckload carrier began rolling out PeopleNet onboard computers a few months ago, he said. The units display miles-per-gallon so drivers can monitor their performance. The technology also tracks a variety of other metrics that affect fuel mileage.

“With the new technology, we’re able to look at over-RPMs, over-idling and those kinds of things, so we’re getting a better handle on where the fuel’s going,” Burnham said.