Diesel Dips 1.3¢ to $3.896, Extending ‘Unexciting’ Run

This story appears in the Aug. 19 print edition of Transport Topics.

The average price of a gallon of U.S. retail diesel last week inched down 1.3 cents to $3.896, continuing a pattern of “unexciting” fuel moves that offer little consolation to fleets.

The Department of Energy reported the decline Aug. 12; it left diesel 6.9 cents lower than the corresponding week of last year. Gasoline dropped 7.1 cents per gallon to $3.561, 16 cents below the 2012 comparison.

Diesel has barely moved since the June 10 price of $3.849. The largest variation since then was 6.6 cents, a mere 1.7% change.

“Diesel prices have been relatively unexciting for the last month or two,” DOE analyst Sean Hill told Transport Topics, sketching a “return to normal” after pipeline, inventory and refinery issues dislocated markets earlier this year.

For President Geoff Baker of McFarland Truck Lines Inc., stability hasn’t really helped his Austin, Minn.-based fleet.

“The lack of volatility is good, but fuel is still extraordinarily high,” he told TT on Aug. 14. “Fuel cost is still such a huge component of operating costs. When you add on emissions requirements, we are still struggling to maintain fuel economy that results in lower costs.”

“Fuel economy is a critical component in tractor purchase decisions,” Baker said, noting that the company’s recently delivered tractors are living up to promised fuel economy gains.

Improvements of 0.1 or 0.2 mpg over other equipment “have a huge impact when our trucks are running over 120,000 miles [annually],” Baker explained.

Like many other carriers, Baker said McFarland’s 100-truck fleet is monitoring speed and engine idling trends, using steps such as paying drivers a monthly bonus based on idling performance.

“We are always looking at driver incentives that are easy to understand and change behavior so that drivers can share in the savings,” Baker added.

Adam Beals, director of maintenance at Pottle’s Transportation in Bangor, Maine, offered a different fuel-saving perspective.

The truckload carrier posts the 10 best and worst drivers monthly on a board in its headquarters shop, naming them and their mpg.

“The board has turned into a peer-pressure type of thing,” Beals told TT. “Nobody wants to get on the bad side.”

Since the posting program began last year, Beals said, “Our fuel mileage has jumped up dramatically,” improving by about 1 mpg.

Other factors improved mileage, Beals quickly added, citing the addition of 58 new trucks, use of super-single tires and campaigns to reduce idling.

Pottle’s, which runs about 140 tractors, uses incentives such as a 4-cent-per-mile bonus for trucks governed at 57 mph. Its latest trailers on order will have skirts for the first time, he added.

Opinions are divided about how long the fuel price stability will continue.

“We are still forecasting a steady decline in fuel prices,” both later this year and into 2014, DOE’s Hill told Transport Topics.

The department’s latest short-term outlook, issued Aug. 6, predicted a modest drop in crude oil to around $102 per barrel that would push down gasoline prices.

On the other hand, Stephen Schork, president of consultant Schork Group, Villanova, Pa., told TT, “I would expect that diesel prices will hold where they are, or they may be skewed a bit higher” over the next two months,

“Crude prices are remaining in a rather sticky, high level,” he said, saying that price pressure will only increase in the fall as more refineries undergo scheduled maintenance.

“That will challenge prices,” he said, with potential for additional pressures if recent fast growth in shipments of crude by rail slows down.

Diesel prices also should stay higher, Schork said, because demand for trucking’s main fuel is more inelastic than gasoline.

Gasoline prices are more likely to ease this fall, he said, as the summer recreational driving season ends and demand is lower and more predictable.

In addition to motorists using less gasoline, Hill said, that fuel is cheaper to make after the summer months when more costly additional production procedures aren’t needed to meet emissions requirements. Diesel prices also should decline, Hill said, though at a slower rate.

Schork said safety concerns resulting from last month’s oil-train crash that killed 47 people in Quebec might prompt customers to use more expensive options, including trucks.

Another potential effect that could keep crude prices higher is last week’s unrest in Egypt, though he noted there hasn’t yet been a disruption of pipelines or Suez Canal traffic.

So far, Schork said, the effect of Egyptian unrest is more hypothetical than real, unlike the actual market disruption during Libya’s civil war in 2011. Last year, more Middle East political uncertainty was blamed when crude spiked again to almost $110 a barrel.

Crude didn’t approach that level until this summer, when the benchmark West Texas Intermediate crude topped out at $108.05 on the New York Mercantile Exchange. Crude settled at $107.33 per barrel Aug. 15.