Diesel Falls 1.9¢ to $2.938 in Third Straight Decline

This story appears in the Sept. 6 print edition of Transport Topics.

The U.S. retail diesel and gasoline price averages both declined for the third straight week, the Department of Energy said Aug. 30, with diesel dipping 1.9 cents a gallon to $2.938 and gasoline shedding 2.2 cents to $2.682, the lowest level in six months.

Since Aug. 9, diesel has come down 5.3 cents a gallon, but still remains 9.9% higher than a year ago, when it stood at $2.674. Gasoline has dropped 10.1 cents a gallon over the same time and is closer to its year-ago price of $2.613.

Crude oil on the New York Mercantile Exchange continued to fluctuate between $71.60 a barrel and $75.80, as it has since Aug. 12. Crude closed out August just under $72 a barrel and then rose the next day. On Sept. 2, it closed at $75.02.

“We’re in a slow drift to weakness,” said Tom Kloza, chief oil analyst of the Oil Price Information Service, Wall, N.J. “There’s flat demand with lots of inventory.”

Barring a sudden, significant event, Kloza said, he anticipates retail prices for diesel and gasoline to continue in slow decline.

As to what might change prices suddenly, Kloza offered a reminder that hurricane season is still at its height and that the Middle East is always subject to political instability.

Fleet executives said they enjoyed the steady prices, but they joined with analysts in wondering what sort of event might break the lull. The calm in pricing generally has been attributed to low demand because of the slack economy coinciding with abundant supplies.

“Fuel prices have been pretty steady and not quite as volatile as before,” said Terry Croslow, chief financial officer of Bestway Express Inc., a truckload and contract carrier in Vincennes, Ind.

Rod Moseley, chief financial officer of Bulldog Hiway Express, said his business plan assumes diesel will cost $2.80 a gallon over the next six months, give or take 15 cents, and he thinks his fuel surcharge program can take care of that fluctuation.

“Customers understand this is important, and they generally pay. I don’t write off the fuel surcharge,” said Moseley, whose company does flatbed and drayage work out of North Charleston, S.C.

To underscore the importance of fuel costs, he said that every 6-cent movement in fuel prices changes his total operating costs by one cent a mile.

Croslow said he has indulged in speculation over what might change petroleum prices, but more practically, he said Bestway just started using its in-cab Qualcomm units to monitor fuel mileage by truck and by driver and then offer bonuses for demonstrated thrift.

Both retail averages, computed by DOE’s Energy Information Administration, hit a high for the year on May 10. Diesel was $3.127 a gallon and gasoline was $2.905.

The U.S. stockpile of ultra-low-sulfur distillate — the basis of on-highway diesel — dipped to 108.9 million barrels on Aug. 27 from 109.4 million the previous two weeks. However, those two readings were the highest inventories for ULSD since it became the industry standard in the fall of 2006.

The U.S. crude oil inventory rose to 361.7 million barrels on Aug. 27 from 358.3 million the week before. Gasoline dipped to 225.4 million barrels fro 225.6 million.

With large supplies already available, refineries throttled down their activity to 87% of capacity on Aug. 27 from 87.7% the week before. It was the lowest utilization rate since April 16.

An oil trader told Bloomberg News on Sept. 1 that general economic news now does more to move oil markets than changes in supply and demand for petroleum.

“Oil moves along with equities; the fundamentals don’t matter,” said Chip Hodge, senior managing director at MFC Global Investment Management in Boston. “Any shred of positive or negative economic news will move the oil market by a couple percentage points,” he told the wire service.

Oil prices moved up on Sept. 1 as a reaction to news that U.S. and Chinese manufacturing did better in August than expected.

The president of Bay Motor Transport, Green Bay, Wis., welcomed the stability in fuel prices, but he cautioned that a three-week trend is far too brief to use as a basis for changing operations.

“It’s not enough time. You can’t develop a strategy based just on that,” Bay Motor’s Jeff LeClaire said of the 5.3-cent drop, “but anything under $3 a gallon is a good thing.”