Diesel Declines 4.1¢ to $2.98
This story appears in the June 7 print edition of Transport Topics.
The average price of retail diesel fuel in the country dropped for the third straight week, this time by 4.1 cents a gallon to $2.98, the Department of Energy reported, bringing the price of trucking’s main fuel below $3 for the first time since late March.
The cumulative three-week decline is 14.7 cents, but the average price is still 26.7% higher than the corresponding time last year, when it stood at $2.352, DOE said after its May 31 survey of fueling stations.
The department also said the retail gasoline average dropped for a third week, most recently by 5.8 cents a gallon to $2.728, the lowest level since March 1. A year ago, the average gallon of regular cost $2.524.
Declines in both refined products were said to be the ongoing result of the 21.1% plunge in crude oil prices from May 3-20. During that span crude went from more than $86 a barrel to $68.
“Crude is the dog and diesel and gas prices are the tail,” said Bruce Gress, director of risk management for Pilot Travel Centers, Knoxville, Tenn.
Additional relief at the pump might not be coming, though, as crude prices on the New York Mercantile Exchange have been rising since May 20, and closed at $74.61 on June 3.
Trucking executives said the three-week decline is welcome news, and can create a cash-flow benefit, but ultimately not be of lasting significance.
“This business is a game of pennies, so it’s always good if diesel is going down,” said Diann Barnes, chief operating officer of flatbed carrier Fairfield Trucking, Hamburg, Ark.
“Of course, it reduces our fuel surcharge, but it’s not large enough to affect our bottom line,” she said.
Fairfield uses 121 owner-operators to haul building products. Barnes said she does accrue a minor cash flow benefit in that she gets to advance less fuel money to owner-operators from the firm’s working capital when prices are dropping.
Midwest Motor Express, Bismarck, N.D., has lowered its fuel surcharge rate by half a percentage point in each of the past three weeks, said COO Marlin Kling, but he does not see that reduction producing a significant change in business.
With an average bill size of $100 to $150, Kling said, “1½% is not significant. Customers will not accelerate shipping because of that unless there is also an increase in the underlying demand for their products.”
Kling said it is difficult to assess the future of oil prices now because of two factors moving in opposite directions. A weak dollar, he said, means imported oil becomes more costly, but lately, the dollar has been strong, especially against the euro, making for cheaper oil.
The second point, Kling said, is that as the economic recovery gathers strength, it will make oil and diesel more expensive. Such conflicts mainly lead him to depend upon the company’s fuel surcharge, which he said has become a necessity for survival.
Supply and demand fundamentals for diesel are stable now, said Brad Simons of Simons Petroleum.
“We’ve had very high inventories for a long time, but they’re being drawn down as demand has jumped.” Simons pointed to U.S. Energy Information Administration figures showing daily demand for distillate fuels — including diesel — at 4.09 million barrels and 4.02 million for the past two weeks, whereas on April 16 demand was at 3.47 million barrels.
Simons and Pilot’s Gress said the Gulf of Mexico oil spill has not affected oil or diesel prices so far.
The U.S. Geological Survey said May 27 the spill rate in the Gulf is 12,000 to 19,000 barrels a day. The U.S. uses about 19 million barrels.
“The long-term effect could be massive,” Gress said. “Drilling in the future will be much more expensive for the incremental volumes we’ll get.”
