Diesel Dips 1¢ to $3.882; Oil Up on Violence in Iraq

This story appears in the June 23 print edition of Transport Topics.

The national retail diesel average fell for a seventh straight week and the 12th time in the past 14 weeks, the Department of Energy reported, but analysts said that could soon come to an end as concern over violence in Iraq has pushed up prices for oil and diesel futures.

Diesel dipped 1 cent a gallon from the previous week to $3.882, DOE said after its June 16 survey of fueling stations. The average has shed 13.9 cents since March 10, when it hit $4.021, the highest level in the past 12 months.

A year ago, the average for trucking’s main fuel was $3.841.

DOE also said the national gasoline average gained 1.2 cents to $3.686. A year ago, gas was cheaper by 6 cents a gallon.

Crude oil on the New York Mercantile Exchange has closed at more than $104 a barrel since June 9 and at $106.43 on June 19. As recently as May 6, the price was less than $100 a barrel.

In addition, wholesale diesel futures on Nymex closed at $3.052 a gallon on June 19, up 6.7% from $2.848 on June 4.

A fleet executive said increases already have hit California.

“This week, we saw a turnaround. From [June 13 to 14], my prices jumped 10 cents a gallon,” said Jack Wolfe, chief financial officer of  Wolfe Trucking in Van Nuys. “That hurts quite a bit. It’s a lot of money,” said Wolfe, whose family business hauls fresh produce to the East Coast.

The company recently has been spending $50,000 to $60,000 a week on fuel to operate its fleet of 25 power units.

Having joined his father’s business in 1971, Wolfe said he has been watching fuel volatility for 43 years, and he is braced for a price surge of 25 cents to 30 cents a gallon because of Middle East worries.

A portfolio manager told Bloomberg News that fighting in Iraq is moving the oil market.

“The global political situation continues to be the main driver of oil,” Adam Wise, an oil-and-gas investment manager for John Hancock Financial in Boston, told the wire service. “Until there’s some stability in Iraq, the oil market will remain extremely volatile.”

U.S. trucking companies should get some insulation from world diesel prices because of the “unbelievable” growth in domestic oil production, said Bob Costello, chief ecnomist for American Trucking Associations.

Costello said domestic production is expected to climb 69% in five years, from 5.47 million barrels a day in 2010 to 9.27 million in 2015, largely due to hydraulic fracturing, or fracking.

Costello said, however, the surge won’t translate to a dramatic drop in diesel prices.

“It’s going to creep down, but it’s not going to plummet like you might think,” he said. He added that there will be no domestic diesel glut because the United States is exporting more fuel and other middle distillates.

DOE’s Energy Information Administration said June 16 that the country also exported 268,000 barrels per day of crude oil in April, the highest level of exports in 15 years. Because of high production, exports have increased sharply since the start of 2013, EIA said, and have exceeded 200,000 barrels per day in five of the past six months.

A lengthy fuel-price spiral can batter fleet balance sheets, so managers hunt for whatever savings they can scrape together.

Godfrey Trucking of West Valley City, Utah, catalogues its trucks by engine type and manufacturer, and monitors performance data extracted from engine control modules, said fleet manager Neil Sebring.

The 98-truck fleet has many units getting about 8.5 miles per gallon, Sebring said, because it’s a young fleet, and drivers are coached to limit engine idling, use cruise control as much as possible and not to exceed 65 mph.

“Eighty percent of our fleet is from 2012 or newer,” Sebring said. The company’s dry vans are used for less-than-truckload and truckload service, and there is also a flatbed division.

In contrast, Wolfe said his refrigerated rigs get only about 6 mpg. His driver teams must stick to the maximum legal speed limit so they can get fresh produce to Boston from Southern California in fewer than 60 hours.

Staff Reporter Seth Clevenger contributed to this story.