Diesel Drops 7.3¢ to $3.021

This story appears in the May 31 print edition of Transport Topics.

The average retail price paid for a gallon of diesel dropped 7.3 cents to $3.021 last week, the Energy Department said, as the biggest one-week decline in nearly 18 months followed a recent slide in crude oil prices.

It was the second straight week the price of trucking’s main fuel has fallen. Meanwhile, the gasoline average declined 7.8 cents to $2.786 a gallon, DOE reported, while crude oil prices fell as much as 21% during May before recovering late last week.

Diesel prices now are 33% higher than during the comparable period of last year, when a gallon cost $2.274. Gasoline has risen 14% in the same period and crude has climbed 17%.

“Fuel prices are going down and demand is going up; that is the best of both worlds,” said Phil Flynn, senior energy analyst at PFG Best, who forecast that prices could drop another 10 or 15 cents a gallon in the next month.

Demand for gasoline and diesel rose 0.6% in the week ended May 21 from the week before, and demand for distillates, including diesel and heating oil, hit the highest level since March 2009, DOE said.

Trucking officials said the recent drop in fuel prices provided a limited benefit.

“Any drop in fuel prices always helps, but the economy affects us more than the fuel price changes,” said Brent Witte, president of Witte Bros. Trucking. “Nowadays customers are accustomed to fuel price fluctuations and fuel surcharges.”

“We’ve become accustomed to the rise and fall in fuel prices,” Witte said. “Fuel fluctuates so much that our goal is to make up those changes in our fuel surcharge. If you can’t deal with the rise and fall in fuel prices nowadays, you are going to go out of business.”

Witte said his company has invested in auxiliary power units, which only became economically justifiable when the tractor trade cycle lengthened from three and one-half years to five years.

More effective equipment management also has helped the Troy, Mo.-based carrier, which operates 170 tractors and specializes in refrigerated less-than-truckload shipments.

Linda Fouret, general manager of 10-truck fleet T.R. Compton/Fouret Bros. Trucking, Nampa, Idaho, also saw limited benefit in fuel price drops.

“We don’t see too much relief because when fuel drops the surcharge drops too,” she said. “If we can get a fuel surcharge from the customer, that is what we try to do. There are some customers that won’t pay it.”

She added that her company was looking at new tire sizes and making sure that services and maintenance are done as regularly scheduled.

Truckers could gain some encouragement from Commerce Department economic reports last week that showed durable goods orders rose for the fourth time in five months and new home sales hit the highest level in two years.

“We see small signs of recovery — we’ve seen a tightening in the truckload sector,” Witte said. “Do I feel confident  in an economic recovery? No. Am I prepared for the economy not to recover? Yes.”

The latest economic news and reports that China will help to support Europe’s troubled finances drove up crude prices $5.80 a barrel in two days before the price settled at $74.55 on the New York Mercantile Exchange on May 27.

Over the past two months, prices have seesawed with the rise and fall of crude, which surged above $86 a barrel before the recent decline.

Neil Gamson, a Department of Energy analyst, said some of the recent price drop already is being realized.

Typically, 40% of a decline in crude prices shows up at the pump in the first week, with 20% in the second week and the rest filtering through the delivery network in the next several weeks, Gamson said.

“Fuel prices remained high until recently because of the false perception that the euro was a superior currency to the good old U.S. greenback,” Flynn said.

He said that crude, which is priced in dollars, costs more in the United States when the euro is strong and the dollar is weak.

He believes the euro’s credibility as a currency has been damaged permanently, which could push prices down even further as Europe’s financial crisis plays out.

“All of a sudden the dollar looks better,” Flynn said. “People invest in it and crude goes down.”