Diesel, Crude Prices Ascend to 2016 Peaks at Year’s End

This story appears in the Jan. 2 print edition of Transport Topics.

The average U.S. retail price of diesel jumped 1.3 cents a gallon to $2.54, the Department of Energy reported Dec. 26, as the price of oil rose past $53 a barrel because evidence is growing that plans to cut production will jell.

It was the highest average price for diesel this year. Trucking’s primary fuel increased by 6 cents a gallon in December and is 30.5 cents higher than it was a year ago, when the price was $2.235, DOE said Dec. 26. Diesel’s low for the year was $1.98 on Feb. 15.

The U.S. average price for regular gasoline rose 4.5 cents to $2.309 a gallon on Dec. 26, or 27.5 cents higher than a year ago, according to the department’s Energy Information Administration.

INTERACTIVE GRAPHIC: Final 2016 weekly diesel prices

Gasoline rose 10.1 cents in December. Its low point for the average price in 2016 was $1.724 a gallon, also on Feb. 15.

“When you look diesel futures, gasoline futures, crude oil futures — they are all going out [of 2016] on a very, very strong note,” said Denton Cinquegrana, chief oil analyst for the Oil Price Information Service, or OPIS.

“A lot of this hinges on the OPEC production cuts,” he said.

OPEC and 11 nations from outside of the group, including Russia, have agreed to trim production in 2017 by about 1.8 million barrels a day, combined, Bloomberg News reported.

Cinquegrana expects that will put pressure on fuel prices, but for diesel, “it is not like we are going to $3 or $4 a gallon anytime soon. … [Prices] are not the kind of albatross [or encumbrance] they have been going back to the beginning of this decade.”

Diesel prices also will climb in 2017, thanks to a number of states that increased taxes on the fuel.

“In Michigan, we have a 7-plus-cent increase coming on gasoline. I’m thinking there is a similar increase going to be put in on diesel,” said Frank Maly, director of commercial vehicle analysis and research at ACT Research Co.

A 2015 Michigan law raises the diesel fuel tax rate to 26.3 cents per gallon, effective Jan. 1, from 15 cents.

Increases in diesel fuel taxes also take effect Jan. 1 in Nebraska, New Jersey and Pennsylvania. Louisiana and Tennessee are among other states considering an increase.

At the same time, at least in the first half of the year, demand for oil is going to be above supply, which hasn’t happened since 2013, Cinquegrana said.

“That should help clean things up relatively quickly … to where you don’t have that glut of crude oil anymore and you don’t have to rent tankers out to store oil on,” he said.

Crude rose on news that Iraq said most international oil companies working in the country, along with the semi-autonomous Kurdish region, have agreed to cut crude output to fulfill an OPEC accord, Bloomberg reported Dec. 26.

West Texas Intermediate crude futures on the New York Mercantile Exchange closed at $53.90 per barrel Dec. 27, up from $52.23 on Dec. 20.

While oil’s climb is potentially worrisome for haulers of general commodities, it appears to be adding life to tank truck carriers. Sales of bulk tank trailers that fleets used to haul petroleum products or water and chemicals for hydraulic fracturing operations have been rising, Maly said.

Net orders for tankers used to haul liquids rose 32% year-over-year and jumped 44% sequentially, he said.

Earlier this year, EIA said fracking has allowed the United States to increase its oil production faster than at any other time in its history. In March, it estimated oil production from fracked wells makes up about half of total U.S. crude oil production.

In the week of Dec. 19, diesel rose 3.4 cents to $2.527 a gallon, 24.3 cents more than a year earlier, as the price of oil hovered near $52 a barrel.

In the same week, the national average price of gasoline rose 2.8 cents to $2.264, or 23.8 cents higher than a year ago.