Diesel Falls to 11-Month Low After Fourth Straight Decline

This story appears in the June 24 print edition of Transport Topics.

The average price of a gallon of U.S. retail diesel dipped 0.8 cent to $3.841 last week, the lowest level since July, the Department of Energy reported, while crude oil briefly reached a nine-month high.

The decline in the diesel average was the fourth straight, totaling 4.9 cents, DOE said after its June 10 survey of fueling stations.

Regular gasoline’s average price declined 2.9 cents to $3.626, ending a modest string of two increases totaling 1 cent, according to DOE.

“Oil has come up in the last week, but it is pretty much stable,” said Sean Hill, an analyst with DOE’s Energy Information Administration.

Crude oil rose as high as $99.01 in intraday trading June 19 on the New York Mercantile Exchange, the highest price since Sept. 17. It fell below $96 a barrel a day later on weak global economic data, Bloomberg News reported.

Hill said the diesel and gasoline declines were “not surprising” when looking at the overall market, especially with several Midwestern refineries that had experienced outages in recent weeks now almost all back online.

Despite last week’s declines, diesel is 11.2 cents above the price during the same week last year, while gasoline is 9.3 cents higher. American Trucking Associations estimates the industry consumed 37.9 billion gallons of diesel and 14.9 billion gallons of gasoline during 2012.

Diesel is at the lowest point since July 30, when it stood at $3.796. At that time, however, the fuel was on its way back up, topping $4 just three weeks later and peaking at $4.15 in mid-October.

In its earnings report last week , FedEx Corp. noted it spent $1.16 billion on fuel for the quarter ended May 31, down from $1.28 billion a year earlier. For the full fiscal year, fuel spending on diesel, gasoline and jet fuel was $4.75 billion, down from $4.96 billion the previous fiscal year.

“The reality is that the last several years have seen a sea change in international trade and in international transportation, and it has been caused by, No. 1, the increased price of fuel,” FedEx Chairman and CEO Frederick Smith said.

He said high oil and fuel prices have “had enormous effects on people’s thoughts about transportation alternatives, and it does make people willing to trade off rate for speed.”

Like EIA’s Hill, Tom Kloza, editorial director of Oil Price Information Service, said there is little reason to expect diesel to increase in the short term, even with oil nearing $100 a barrel.

“There aren’t any real catalysts to inspire buying in diesel,” Kloza said.

He cited the ongoing economic uncertainty throughout Europe, the end of the U.S. harvest season and “steady but not spectacular” exports of U.S. distillates as three significant reasons why the diesel average should continue to drift down this summer.

But that offered very little consolation for trucking fleets operating in Connecticut, said Michael Riley, president of the Motor Transport Association of Connecticut. Not only was Connecticut’s pump price the highest in the nation last week at above $4.30 a gallon, according to ProMiles’ daily survey, the state announced its diesel fuel tax will increase 3.7 cents a gallon July 1 to 54.9 cents. That brings the total fuel-tax jump there to 12.3 cents since July 2011.

While most trucking fleets have a fuel surcharge in place to recoup some expenses, contracts based on the U.S. average would not cover the added expense of filling up in the state at retail pumps. DOE’s average for the New England group of states, which includes Connecticut, was $3.98 last week, 13.9 cents higher than the national price.

Riley also mentioned another major problem that a large number of his fleets face: “Many of my members have contracts to deliver goods or plow snow for the state of Connecticut.

A few years ago, when the fuel-tax increases began to create havoc, we wrote the governor asking that if the state was getting more benefits, they should share it with the businesses that have to pay for it.”

Unfortunately, Riley said, the state has continued to deny that request.

Also last week, DOE reported that crude inventories increased to 394.1 million barrels in the week ended June 14. That remains near the 82-year high of 397.6 million barrels reported May 24. Imports rose to 8.44 million barrels a day last week, the most since Dec. 7.

Data also showed gasoline stockpiles increased 183,000 barrels to 221.7 million and distillate fuels, which include diesel and heating oil, fell 489,000 barrels to 121.6 million.