Diesel Drops 8.6¢ to $4.03; Decline Is Biggest Since Dec. 2008
This story appears in the Nov. 5 print edition of Transport Topics.
U.S. average diesel prices dropped 8.6 cents last week, the largest decrease in almost four years, to $4.03 a gallon, the Department of Energy reported. Meanwhile, analysts said they were not expecting any lasting increases in prices as a result of Hurricane Sandy.
The diesel decline was the second straight, following a 3.4-cent drop the previous week. It was also the largest drop since a 9.3-cent slide on Dec. 15, 2008, DOE said after its Oct. 29 survey of fueling stations.
DOE also said the regular gasoline average fell 11.9 cents to $3.568 a gallon. That followed a 13.2-cent fall the previous week, which was the largest drop in 20 months.
Diesel has dropped four of the past six weeks, while gasoline has fallen three straight weeks and five of the past six. Prices for each fuel increased for 11 straight weeks before this recent downward trend.
Despite the declines, diesel is still 13.8 cents a gallon higher than a year earlier, a 3.5% year-over-year increase. Gasoline is now 11.6 cents, or 3.4%, higher than its year-ago figure.
Sean Hill, an analyst with DOE’s Energy Information Administration, said that fuel refineries along the East Coast were shut down ahead of Hurricane Sandy. With no reports of significant damage, the storm is unlikely to have any significant effect on prices.
“They were shut down as the hurricane came through, and that stopped any production,” Hill told Transport Topics, adding that any small price spikes in the region immediately following the storm were already coming back down.
In all, seven fuel refineries shut down or slowed operations due to Sandy, EIA reported.
Hill contrasted Hurricane Sandy with Hurricane Katrina, which devastated the Gulf Coast in 2005. Damage to oil facilities caused diesel to shoot up 30.8 cents in one week.
“Since there’s not any oil produced in [the Northeast] . . . and since it didn’t damage any refineries in that region, it seems like any price impacts will be very short-lived,” Hill said. “I don’t suspect it will have any long-term effect on diesel prices.”
Patrick DeHaan, senior petroleum analyst for price-tracking website GasBuddy.com, said he did not expect lasting fuel price increases from Sandy and predicted that the storm may cause prices of both diesel and gas to fall.
“I think demand has taken a bigger hit than production,” he said of both fuels.
DeHaan said some refineries in the region were coming back online by late last week. He said Phillips 66’s Bayway Refinery in Linden, N.J., remained offline as of Nov. 1 but was expected to start refining again within days.
EIA’s Hill said last week’s drop in diesel and gasoline prices were due to both fuels catching up to earlier declines in crude oil prices.
“The [inventories] are still tight, so the only real contributor . . . is the cost of crude going down in the last couple of months and that finally passing through to the retail price,” he said.
Crude has been below $100 a barrel since May 4 on the New York Mercantile Exchange. After hitting a recent low of $77.69 on June 28, it rose back as high as $99 on Sept. 14.
While it stayed above $90 a barrel throughout most of October, crude fell to $85.54 on Oct. 29 as traders projected lower demand due to Sandy, Bloomberg News reported.
But it soon started to increase as the storm passed, closing at $87.09 on Nov. 1.
Even though it reported a third-quarter profit, truckload carrier Covenant Transportation Group Inc.’s earnings statement outlined the effect of rising fuel prices before the current dip.
“The difference in diesel fuel prices was a significant factor in our financial results for the third quarter of 2012, compared with the second quarter of 2012,” Covenant President David Parker said in a statement.
Covenant, like most fleets, experiences a lag in passing increased fuel prices to customers through surcharges, and the lag decreased its earnings by about 16 cents a share, compared with the previous quarter, Parker said.
