Diesel Dips for Third Week as Middle East Tensions Ease

Retail diesel prices retreated for the third consecutive week, dipping 1.2 cents to put the national average at $4.073 a gallon, the U.S. Department of Energy reported.

The slide means diesel cost an average 5.1 cents less a gallon than it did at the same time last year, although the trucking industry has paid dearly for fuel this year due largely to Middle East tensions.

Diesel prices have been above $4 a gallon for 10 weeks — a situation not seen since 2008, when the price stayed over $4 for 23 weeks.

The retail price of gasoline also declined last week for the fourth consecutive time, falling 4 cents a gallon to $3.83, the DOE said in its April 30 report.

Last year at this time, gasoline cost 13.3 cents more a gallon.

Fuel prices are falling because crude oil markets are returning to “some semblance of normalcy” as Middle East tensions ebb, said Phil Flynn, an analyst at PFG Best Research. In March, markets priced crude oil as if an attack on Iran would occur in May, he said.

“The risk from Iran is still there, but it’s down pretty dramatically,” Flynn said.

“Countries that were hoarding oil supply in Europe and Asia slowed a little bit,” he added. “Oil inventories in the U.S. are at a 22-year high and the [price of] Brent crude in Europe has come down a little bit.”

Crude experienced its largest one-day drop of the year May 3 — falling from $105.22 to $102.54 a barrel on the New York Mercantile Exchange. Crude’s highest price this year was $109.77 on Feb. 24.

Diminished economic expectations also helped stem crude prices, and fuel followed, said Sander Cohan, a transportation fuels analyst at Energy Security Analysis Inc. in Wakefield, Mass.

“The double dip in England, double dip in Spain, some of that is pulling down prices,” Cohan said. Both nations slipped back into recession last month.

“Diesel [prices are] proving a little bit more resilient just because there’s much more of a global demand market for it, whereas gasoline doesn’t have as strong a demand case,” Cohan said U.S. diesel buyers have to compete with European and Latin American buyers, and South America is heading into winter, where heat depends on diesel, Cohan said.

With diesel still more than $4 a gallon, carriers said they have short- and long-term strategies for controlling costs.

“We’re actually buying futures contracts, but we’re also taking inventory and we’ve probably had more success with taking inventory and buying on price weakness — which is a relative term — and depleting inventory on price strength,” said Steve O’Kane, president of A. Duie Pyle Inc., West Chester, Pa.

The carrier fuels its 850 power units at its terminals, which allows for bulk buying and diesel inventories of 500,000 gallons, O’Kane said.

Short term, the carrier also is retooling its fleet to “take advantage of the SCR technology for the fuel economy it [offers],” O’Kane said, referring to selective catalytic reduction, an emissions-control technology used by most truck makers. “We got 140 trucks last year. We’ve got 100 on order now. . . . By the end of 2013, we will have done better than 50% of the fleet.”

Pyle is buying some trucks with automatic transmissions, saving about 0.1 mile a gallon. “It’s tough to squeeze it out, but a tenth of a mile means a lot to us,” O’Kane said.

“As a long-term strategy, we’ve had one of our maintenance staff research the natural-gas options, which are, in our view, at least three years out for our applications,” O’Kane said.

To fuel up at its terminals, switching to natural gas would require considerable construction, O’Kane said. Safety regulations are strict, and engine maintenance is more expensive, he said.

Fuel savings are tough to eke out at Evans Delivery Co., the Schuylkill Haven, Pa., intermodal carrier that runs 1,700 drayage units at ports from New England to Florida and the Gulf Coast.

“We have to take into consideration excessive idling time,” said Gerry Coyle, vice president of environmental and sustainable operations.

“So even though you may only travel 20 miles each way [hauling cargo] . . . you still probably burn two gallons at each end with idling,” Coyle said.

“If you’re in a long line of trucks, and you’re moving up by 20 feet every couple of minutes, nobody’s figured out” how to save fuel, Coyle said. “You can’t shut the engine off.”

So when diesel costs more than $4 a gallon, a weekly fuel surcharge is the only defense, Coyle said.

“Some shippers will try to get away with changing it monthly,” he said. “We’ve even had them say to us, ‘We only want to change it every three months.’” 

The carrier also deals with fuel costs via agreements with fueling station chains or truck-stop operators willing to provide discounts in exchange for a steady stream of customers, Coyle said.