Diesel Dips 0.4¢ to $3.95 a Gallon; DOE to Open Strategic Petroleum Reserve
This story appears in the June 27 print edition of Transport Topics. Click here to subscribe today.
The average price of a gallon of retail diesel dipped for the sixth time in the past seven weeks, even before 28 nations agreed June 23 to release 60 million barrels of crude oil from their strategic reserves in a bid to drive fuel prices lower around the world.
The diesel average slipped 0.4 cent last week to $3.95 a gallon, the Department of Energy reported after its June 20 weekly survey of filling stations.
Later last week, the International Energy Agency said the United States and 27 other countries will release a significant amount of crude oil into the market in the next 30 days. In the United States, 30 million barrels from the Strategic Petroleum Reserve will be released, according to DOE.
“I think it’s going to bring prices down pretty dramatically,” Phil Flynn, a senior market analyst at PFGBest, told Transport Topics on June 23. “Prices were already starting to come back down.”
Shortly after IEA’s announcement, crude oil for August delivery dropped to as low as $89.69 a barrel on the New York Mercantile Exchange, the lowest level since Feb. 22. Oil closed the day at $91.02, down $4.39.
Last week’s small price decline followed a 1.4-cent increase the prior week, which was the first gain in five weeks. The price average has now fallen 18.4 cents since hitting its high for the year of $4.124 on May 2.
Flynn attributed last week’s drop to an early end to the agriculture industry’s planting season.
Meanwhile, the average price of a gallon of retail gasoline fell 6.1 cents to $3.652 a gallon, the sixth consecutive decrease, DOE said. It has dropped each week since hitting $3.965 a gallon on May 9, a two-year high. Gas has decreased 31.3 cents over the past six weeks.
Despite the recent declines, diesel is still 98.9 cents higher than it was a year ago, while gasoline rose 90.9 cents.
American Trucking Associations said it welcomed the oil release. “However, this temporary step to ease high fuel prices must be combined with long term solutions that expand access to domestic sources of oil,” spokesman Sean McNally said.
The oil stockpile release will be the third time IEA has coordinated a release since its 1974 inception, Bloomberg News said. It previously made releases during the 1991 Persian Gulf War and in 2005 after Hurricane Katrina.
Even before the announcement, Flynn was predicting more declines at the pump.
“Seeing that [farmers] are almost done with the planting, we should see a huge reduction in diesel demand,” Flynn said.
Agriculture is the second-largest user of diesel in the United States behind trucking, Flynn said.
The recent string of diesel declines has benefitted Roane Transportation Services, because the fuel surcharges it levies are based on the previous week’s national average, said Steve Kennedy, managing partner at the flatbed carrier.
“The fuel surcharges lag behind, so we get a little boost in that time frame,” Kennedy said.
Kennedy has seen recent decreases in the area around Rockwood, Tenn., where Roane has its sole terminal.
“We’re seeing it going down, softening a little,” he said. “Any time they soften a little, it seems to give us a breath of fresh air,” he added.
Roane shields itself from high diesel prices by negotiating a volume deal with truck-stop chain Pilot Flying J, Kennedy said. His company’s trucks get a small discount in return for guaranteeing the fleet will buy a certain amount of diesel per month.
And Terry Leavitt said he has found that the fuel surcharge he implemented years ago at Leavitt’s Freight Service, where he is president, works well during price fluctuations.
“The day I quit looking out for [fuel costs], or recouping it, I’ve got serious problems,” he said.
Leavitt said customers have rarely pushed back against the surcharges, which are based on regional DOE averages for the West Coast and for California, where the Springfield, Ore., flatbed carrier frequently operates. Those areas frequently have the highest regional prices, DOE figures have shown.
Meanwhile, a report June 22 by DOE’s Energy Information Administration showed that U.S. crude inventories fell by 1.71 million barrels to 363.8 million barrels in the most recent week, the third straight decline.
Distillate inventories, which include diesel, rose 1.17 million barrels to 142 million, while gas inventories dropped 464,000 barrels to 214.6 million, EIA said in its report.
