Diesel Dips 2.1¢ to $2.903, Its Lowest Level in 19 Weeks

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

U.S. retail fuel prices continued their midsummer slide last week, as the average cost of a gallon of diesel dipped 2.1 cents to $2.903, and gasoline slipped 0.8 cent to $2.718, the Department of Energy reported.

Both motor fuels are at their lowest levels in 19 weeks, DOE said after its July 12 survey of filling stations. Diesel has declined 22.4 cents since reaching a high for the year of $3.127 on May 10. Gasoline has dropped 18.7 cents during the same period.

Despite those declines, diesel is now 36.1 cents above its price at the comparable time last year, while gasoline is 19 cents higher.

Two competing forces in the diesel market caused the earlier upward swing and the slide that continued last week, said Andrew Reed, an oil market analyst for Energy Security Analysis Inc.

“On the one hand, you have a demand recovery supporting prices, and on the other you still have high inventories,” said Reed, a specialist in distillate markets. The inventories are acting as a “restraint” on prices, he added.

On July 9 DOE reported that domestic distillate inventories were at nearly 4.45 million barrels, the highest since January 2009.

In Buckeye, Ariz., Rick Duncan, president of Duncan & Son Lines, which runs 180 trucks hauling containers out of the ports of Los Angeles and Long Beach, Calif., said he does not expect the drop in diesel prices to last.

“I keep hearing $3 a gallon for the rest of the year,” Duncan said.

Three years ago, Duncan, the third generation to run the trucking firm, said he began an intensive push to lower fuel expenses.

“With the number of gallons, the cost per month, it’s tremendous, just tremendous,” he said, even though the firm buys in bulk and fuels the fleet at its terminal as often as possible.

“Our typical run is from Phoenix to Los Angeles and back. So, we can make the 800-mile round trip without having to fuel,” Duncan said.

To further save costs, the firm also entered into an agreement with a national truck-stop operator to buy on-road fuel at a prearranged discounted price, he said.

“Then, we try to really watch our [electronic control module] settings on our trucks. We limit our trucks to 64 miles per hour,” he said.

About two years ago, Duncan said, he also began replacing his fleet with new trucks in response to air quality regulations at the ports. He has found that the aerodynamic designs on his newer trucks are producing better fuel mileage — about 7 mpg compared with about 5 mpg on his older trucks.

Dave Cox, co-owner of Cox Trucking in St. George, Utah, a fleet of 60 dry vans and flatbeds, said his firm has made buying new trucks part of its plan to cut down fuel costs.

“We haven’t bought for a couple years and that’s been the problem, I think,” Cox said.

“We’ve been . . . weeding out some of the trucks that don’t necessarily get too good a fuel [mileage] for whatever reason,” Cox said. “Maybe they’re not aerodynamic or maybe they’ve got the wrong engine.”

Leavitt’s Freight Service Inc. in Springfield, Ore., also is buying new trucks with fuel efficiency in mind.

“Our fleet mileage is about 5.8, and we’ll pick up another tenth or two [with the new trucks],” said Terry Leavitt, who with his cousin Duane, owns the all-flatbed fleet they bought from their parents. “I’m anticipating 6 [mpg] on these new ones.”

Leavitt said he has tried to hold down fuel use by downloading the electronic data gathered off his engines at the end of each month and, then, working with his drivers.

“The driver, he impacts fuel mileage 30%, 35% of it, so, we stay close to our guys in terms of coaching them, keeping visibility on fuel mileage,” Leavitt said.

“When fuel really spiked up in ’08, we reduced our governed speed from 68 [miles per hour] to 60,” he said, adding that with the onset of the recession and lower fuel prices, he raised the speed limit up to 65 mph.

On July 15, crude closed at $76.62 a barrel on the New York Mercantile Exchange. The previous week, crude closed at $74.07 a barrel.

“I don’t think oil’s going to break out until there are a lot more stronger signs in the economy,” said Chris Barber, a crude oil market analyst at ESAI.