Diesel Drops 3.4¢ to $2.177; Price Nears Seven-Year Low

A continuing slide in the U.S. retail diesel average brought the fuel to its lowest price in nearly seven years, the Department of Energy reported Jan. 11.

Diesel prices fell for the ninth consecutive week, dropping 3.4 cents a gallon to $2.177 — the lowest level since March 23, 2009, when the average was $2.093.

Trucking’s main fuel was 87.6 cents a gallon cheaper than a year ago, when it was $3.053, DOE’s Energy Information Administration said.

It also is just 16 cents higher than where it was for the lowest close during the Great Recession, $2.017 on March 16, 2009. The last time it was below $2 a gallon was Feb. 14, 2005, at $1.986.

Gasoline is there already. The national average price of gas last week fell 3.2 cents to $1.996 a gallon Jan. 11, EIA said.

It was the eighth time in the past nine weeks that gas prices have fallen, leaving the fuel 14.3 cents cheaper than a year ago when it cost $2.139.

Diesel fell in all regions and was lowest in the Rocky Mountain states, where prices tumbled 5.7 cents to $2.134.

At the same time, oil exploration is slowing and related tax revenues in some states are plunging as uncertainty continues over where low oil and fuel prices are headed, analysts said.

Kevin Burch, president of truckload carrier Jet Express Inc., in Dayton, Ohio, called the current energy environment an “uncharted area,” where oil and fuel prices continue to drop despite global unrest and stock market jitters that would have in years past sent prices climbing.

“You’d think the price of fuel would have a tendency to be affected, but it has not been. Nobody thought these prices would be where they are at today,” said Burch, who also is first vice chairman of American Trucking Associations.

Chris Martenson, an analyst specializing in energy and resource depletion at PeakProsperity.com, called the current situation a “big story with a lot of moving pieces.

“Suppliers have to pump more to keep revenues up,” Martenson said. “Particularly if they are indebted, they don’t have an option.”

Steadily falling prices, he said, also have meant more than $1 trillion that should be going into “upstream investments” are not occurring as it should to ensure future production will meet future demand.

“That’s a story that really needs to be on the radar screen at the C-level. If I was in the trucking business, I’d want to be watching that. I’d be seriously thinking about how I am going to hedge my exposure to oil prices within a year-and-a-half but no later than three years, at this rate,” Martenson said.

EIA said in a price summary that the average on-highway retail diesel price in 2016 would be $2.29 then rise to $2.59 in 2017.

Meanwhile, crude oil futures closed on the New York Mercantile Exchange at $30.48 a barrel Jan. 13. They fell past the rock-bottom close during the Great Recession of $33.87 on Dec. 19, 2008, to the lowest close since December 2003.

So far, West Texas Intermediate, the basis of Nymex trading, has fallen 30% in a year, Bloomberg News reported.

As a result, some states are seeing once-reliable tax income disappear.

EIA said several oil-producing states impose severance taxes on oil extraction and have collected significant revenues from companies, but drilling has been cut back as energy prices have tumbled.

Alaska, Oklahoma, North Dakota, Texas, West Virginia and Wyoming have budgets that are being squeezed by curtailed production of nonrenewable resources such as crude oil, natural gas and coal that has cost some of them billions in lost tax revenues, EIA said.

Underscoring that issue, the average U.S. drilling rig count for December was 714, down 46 from November and a decline of 1,168 from December 2014, Baker Hughes, an oil field services firm, reported Jan. 8.

The survey counts the number of drilling rigs actively exploring for or developing oil or natural gas.

EIA said U.S. crude oil production peaked for 2015 at 9.5 million barrels a day during the second quarter and that it dropped to about 9.3 million during the fourth quarter. It should continue down to 8.48 million or 8.49 million barrels a day during the second half of this year.

The agency said U.S. production, especially from “tight oil” fields — which have short investment horizons that make them among the most price-sensitive production globally and involve horizontal drilling and fracturing — will drop by 400,000 barrels a day in 2016.

It forecast the price of U.S. retail regular gasoline would average $2.03 a gallon in 2016 and $2.21 in 2017.