Diesel Declines 1.8¢ to $2.296

By Rip Watson, Senior Reporter

This story appears in the Jan. 26 print edition of Transport Topics.

The average retail price of diesel fuel remained relatively stable for a second week, dropping 1.8 cents to $2.296, the U.S. Department of Energy reported.

The decline followed a rise of 2.3 cents the week before and left diesel close to where it was when the year began: The first week of January’s $2.291 a gallon level was the lowest since June 2005.

Meanwhile, the average gasoline price increased for the fourth consecutive week, rising 6.3 cents a gallon to $1.847, DOE said after its Jan. 19 survey of fueling stations.

“Lower fuel prices obviously are better than higher from everybody’s point of view,” said Bob Pemberton, president of Pemberton Truck Lines, Knoxville, Tenn. “Customers don’t like high fuel prices, either. It seems like prices have stabilized a little bit. Stabilization gives you the ability to do some planning.”

“That helps us as we bid on new business and try to get some additional freight,” he said. “It looks like [diesel] prices are going to remain in this band range for the time being.”

The national diesel average has been sliding since it hit a record $4.764 a gallon in July. It is currently 52% below that price and 30% less than $3.27 a gallon in the comparable week in 2008.

Based on the weekly use of trucking’s main fuel, which American Trucking Associations puts at 752 million gallons, fleets are spending $732.4 million a week less than the same week of 2008 because of the 97.4-cent-a-gallon drop in diesel.

Lower gasoline prices also help fleets, because trucks use 284.6 million gallons a week, according to ATA. With prices $1.17 a gallon lower than this time last year, that adds up to a saving of $333 million a week on a year-to-year comparative basis.

However, continued volatility in oil markets means prices won’t necessarily stay low for long.

“Daily prices [for crude] are still pretty volatile,” said Energy Department analyst Tancred Lidderdale. “I don’t see that market as more stable than it was. There are implications from options trading that it might become more volatile.”

In trading last week, the price of crude varied between $38.74 and $43.43 a barrel, continuing a monthly pattern that drove prices to nearly $49 a barrel on the New York Mercantile Exchange earlier this month and as low as $35.40 on Jan. 15.

Noting the 15% drop in de-mand for diesel compared with January 2008, FCStone Group Vice President James Burr said it was possible that prices for diesel could sink “a little bit” further because of the lower fuel use. He didn’t say how much lower prices could go.

“The real question is when the economy bottoms,” said Burr, whose business is commodities trading. “When it does, demand will pick up for diesel.”

Pemberton also is a realist about future diesel prices.

“I don’t think it [the current price] is here to stay,” he said. “The prices will go back up. I don’t know that anyone knows when that will happen.”

Whatever direction future fuel prices take, Pemberton said, his truckload fleet continues to use approaches that were adopted then, such as squeezing more fuel efficiency out of tractors and reducing idling time.

“When things were ridiculous pricewise, we were trying to take costs out of our system to become more efficient,” he said. “We don’t see the same reward as we did then, but we are doing the same things. Regardless of the price, fuel is a big cost that we try to keep a handle on.”

With the recent price changes, gasoline now is at its highest level in nearly two months and has rebounded from a four-year low of $1.613 set during December. The rising prices for gas and the little-changed diesel prices have narrowed the price differential between the fuels.

Last week, diesel cost 44.9 cents a gallon more than gas. That was the smallest gap since Oct. 6, when it was 39.1 cents. As recently as Dec. 8, the gap was almost 82 cents.

Gasoline prices are rising and the spread between the fuels is narrowing because refining margins have been increasing for that fuel in the past two weeks, while margins for diesel are slipping, said DOE’s Lidderdale.

Refining margins have risen 22 cents a gallon in the past two weeks, Lidderdale said, from 14 cents a gallon to 36 cents a gallon. At the same time, the margins for diesel have dropped from 46 cents a gallon to 32 cents.