Diesel Dips 1.5¢ to $3.41 a Gallon

By Dan Leone, Staff Reporter

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

The average price of retail diesel fell 1.5 cents last week to $3.41 a gallon, ending a string of five straight increases that had pushed the fuel to record levels, the Department of Energy reported.

Commercial trucking’s main fuel had increased 39 cents over those five weeks and, despite last week’s price decline, it was still 85.7 cents a gallon higher than a year ago, DOE said after its Nov. 19 survey of fueling stations.

At an average burn rate of 730 million gallons of diesel every week, the trucking industry paid $625.6 million more for its fuel last week than during the corresponding time in 2006. For an individual trucker, that equates to an additional $171.40 on a 200-gallon purchase.

Although recent diesel price increases averaged nearly 8 cents a week — far greater than last week’s 1.5-cent decline — an analyst attributed that difference to recent movements in the crude oil market.

“Usually, it takes between three to six weeks for the prices in the crude oil market to filter through completely to the retail market,” said Laurie Falter, an analyst with DOE’s Energy Information Administration.

Crude oil, which closed at $80.24 a barrel on Oct. 1 on the New York Mercantile Exchange, rose as high as $98.62 in intraday trading on Nov. 7, which fueled the diesel price spike, before briefly declining about $7 during the following week.

However, on Nov. 20, oil finished trading at $98.03 a barrel, the highest-ever closing price, up about $3.51 from the previous day.

DOE also said the average retail price of gasoline fell 1.2 cents to $3.099 a gallon last week. The dip ended a four-week streak of rising gasoline prices, during which gas gained 34.9 cents. Gasoline is now 86 cents more expensive than a year ago.

Trucking burns about 290 million gallons of gasoline each week.

The high prices of retail fuels have started cutting into earnings projections.

Parcel delivery company FedEx Corp. on Nov. 16 cut its earnings forecast for its fiscal second quarter and full year, due in large part to higher fuel prices (see story, p. 4).

Alan Graf, FedEx’s chief financial officer, said in a statement the company’s fuel costs had increased more than 8% — about $85 million — since its September second-quarter guidance. Graf said even FedEx’s “dynamic fuel surcharges” couldn’t keep up with fast rising fuel surcharges “in the short-term.”

With prices increasing, at least one trucking company has turned to its maintenance department to squeeze more miles out of its vehicles through engine tuning.

Phil Gomes, shop manager for truckload carrier Dirksen Transportation, Manteca, Calif., said Dirksen drivers often cruise at about 58 mph but use only nine of 10 possible gears on their trucks, which he said decreases fuel economy.

To counter the problem, he said, “We set a parameter in the truck’s [engine control module], so that in ninth gear, the engine will only turn 1,700 rotations per minute.”

Gomes said the modification “forces the driver to get up to the higher, more fuel-efficient gear” to cruise at around 58 mph.

This practice has helped Dirksen boost fuel efficiency by about a half-mile per gallon, or about 100 miles per 200-gallon fuel purchase, Gomes estimated.

Dirksen burns about 7,600 gallons of fuel a day in about 90 tractors.

Peter Daniels, manager of Daniels Transportation Co. in White River Junction, Vt., said customers of the regional truckload carrier have started to pressure the company to revise the way it calculates surcharges.

“We’re getting pressure from our customers to [change] our surcharge calculations by using a higher ‘peg price,’ ” Daniels told Transport Topics.

Increasing the “peg price,” or baseline price used in fuel surcharge calculations, would result in lower fuel charges for shippers, but to compensate, Daniels said the carrier would be forced to increase its base rates.

Besides surcharges, Daniels said his company has been able to save on fuel by setting up in-house fuel pumps at its headquarters. These bulk purchases can save up to 10 cents a gallon, he said.

Daniels Transportation has about 60 trailers, 200 tractors and burns about 3,000 gallons of diesel a day.

Meanwhile, analysts attributed last week’s crude oil price increase to a number of factors, including the U.S. dollar’s decline to a new low against the euro.

“As the dollar falls, U.S. refiners need to bid more to compete with overseas consumers,” Rick Mueller, an analyst with Energy Security Analysis Inc., told Bloomberg.

Other factors included a fire at an oil-sands crude production plant in Alberta, Canada, and OPEC’s recent decision not to alter its production quota from the current level of
27.2 million barrels a day.

However, the oil cartel is scheduled to meet again Dec. 5 to discuss production levels.