Diesel Down 5.9¢ to $3.897; Fall in Crude Sparks Largest Drop in 5 Months
By Greg Johnson, Staff Reporter
This story appears in the June 4 print edition of Transport Topics.
The national average price for a gallon of retail diesel fell 5.9 cents to $3.897 last week, the seventh straight decline and the largest one-week drop in five months, the Department of Energy reported.
Commercial trucking’s main fuel is now at its lowest level since Feb. 6, when the average was at $3.856.
Diesel has dropped 25.1 cents since April 16 and is 5.1 cents below prices a year ago, DOE said after its May 28 survey of fueling stations.
The one-week diesel decline was the sharpest since Dec. 19, when it fell 6.6 cents.
DOE also reported that the average price for a gallon of regular gasoline slid 4.5 cents to $3.669. It was the eighth consecutive week gasoline has declined, totaling 27.2 cents. In the last week of May 2011, gasoline was 12.5 cents higher at $3.794.
Kyle Cooper, managing partner in oil consultancy IAF Advisors, Houston, said falling crude prices are the main reason diesel prices have slipped.
“The overall decline in petroleum has been official, and this eventually translated into lower prices at the pump,” he said.
Crude oil fell as low as $87.82 a barrel on May 30 on the New York Mercantile Exchange. The high for crude this year was $109.12 a barrel on Feb. 24.
“Hopefully, this recent downturn in petroleum prices should translate into even lower pump prices,” Cooper said.
Motor carrier executives welcomes the price declines but said they are continuing to budget as if diesel will move higher.
“We’ve kind of adjusted to a new normal,” said Sean Claton, vice president and general manager at Midwest Specialized Transportation Co.
“Whether it’s $4.20 or $3.80, we have to use our fuel charges and contracts so we can stay fairly protected. This is how we hold our linehaul rates,” he said.
Claton noted his Rochester, Minn.-based flatbed hauler of machinery budgets for diesel to be priced around $4.15 a gallon. If the price is lower than that, it works out fine, he said.
But the company and many of its drivers must make up the difference when the price is higher.
Claton calls this the “lag,” when the price of diesel spikes beyond what a surcharge will completely cover. He explained that while MST is paying the high cost of fuel one month, the higher revenue it receives when a surcharge kicks in is not realized until a month later.
In the meantime, MST must make do with revenue that comes in from freight that moved at lower rates the previous weeks before diesel spiked.
About 60% of MST drivers are owner-operators and they pay close attention to where they fill-up and how to take advantage of discounts that vendors may offer, Claton said.
Meanwhile, Tancred Lidderdale, senior economist with DOE’s Energy Information Administration, said a recent bump-up in oil supply is also helping to push down prices.
“We’re looking at an unexpected increase in supply and that the shale revolution in natural gas has now moved over to the oil patch,” Lidderdale said. “We also expected gas prices to peak this time of the year, but they peaked much earlier.”
On May 31, oil futures on the New York Mercantile Exchange closed down $1.29 to $86.53, according to Bloomberg News.
Lidderdale pointed to oil speculators trying to reduce their exposure to petroleum, worries over the Euro, financial turmoil in Greece and China’s economic slowdown for lower crude oil prices.
“We still expect that in the next few weeks, prices could drop a few more cents. It’s a question of crude oil prices and the global economy,” Lidderdale said.
