Diesel Falls to 3-Month Low

By Dan Leone, Staff Reporter

This story appears in the Aug. 25 print edition of Transport Topics.

The U.S. retail diesel average fell another 14.6 cents to $4.207 a gallon last week, extending the most pronounced drop in two years to a fifth consecutive week, the Department of Energy reported.

The diesel average is now at its lowest level in three months and has fallen 55.7 cents since hitting a record on July 14. However, commercial trucking’s main fuel is $1.339 a gallon higher than a year ago, DOE said after its weekly survey of filling stations.

DOE also said the average price of a gallon of regular gasoline declined for the sixth straight week, falling 6.9 cents to $3.74 a gallon. Gas is still 95.5 cents more than a year ago, DOE data showed.

“We’re experiencing downward pressure in gasoline prices and a pushing back on crude prices, and that’s having a positive influence on diesel,” said Mary Novak, an energy analyst with Global Insight.

American Trucking Associations estimates that the U.S. trucking industry burns 752 million gallons of diesel and 285 million gallons of gas every week.

Also last week, crude briefly dipped below $113 a barrel for the first time since May 1 before worries over future relations with oil-rich Russia sparked a rally that brought prices back up over $121 a barrel for the first time in more than two weeks.

“The recent fall in crude oil prices has pulled down the retail prices for both gasoline and diesel fuel,” DOE said earlier this month in its short-term energy report.

Diesel’s drop the past five weeks is the steepest since a similar stretch started in August 2006. However, at that time, the average was hovering around $2.50 a gallon.

In 2008, diesel has not been below $4 a gallon since April and crude has been above $100 since early March.

In fact, prices have been so high for so long that they have prompted some carriers to bring the fuel issue to the forefront of their driver recruiting programs.

Trucking concerns have “pruned the fleets selectively . . . weeding out people getting low [miles per gallon],” said Steve Prelipp, president of Prelipp Consulting and former head of recruiting for truckload carrier Schneider National, based in Green Bay, Wis.

“When fuel was $2 a gallon, you could afford to have somebody running well below the MPG that the truck is capable of doing,” Prelipp said. But today, “drivers have to do better.”

An executive at truckload carrier Celadon Group agreed.

“What’s really changed for us is that we’re looking for [drivers] who are willing to help control our costs,” said Brett Terchilla, Celadon’s vice president of operations.

Under a new company policy, all potential drivers must first sign off on a checklist of fuel conservation policies before they see the inside of a truck, Terchilla said.

For example, drivers must keep their idling time to within 10% of Celadon’s fleet-wide average. As of mid-August, the initiative had reduced idling time by about 15% compared with a year ago, Terchilla said.

During an August conference call with investors, Stephen Russell, Celadon’s chief executive officer, said that the company has “terminated over 50 drivers for excessive idling in the last several months.”

Russell said that idling a truck consumes about 1.1 gallons of diesel an hour. That means that idling Celadon’s 2,500 company trucks for one hour would burn about 2,750 gallons at a cost of $11,570, at last week’s national average price.

Applying Terchilla’s 15% idling-time reduction to that figure would save Celadon about 413 gallons of diesel, or $1,736.

Celadon, Indianapolis, ranks No. 52 on the Transport Topics 100 list of the largest for-hire carriers in the United States and Canada.

Meanwhile, DOE signaled that in spite of the recent price declines, the average for diesel fuel is likely to remain more than $4 a gallon through 2009.

The agency expects the diesel average to be $4.18 a gallon for 2008 and $4.27 a gallon in 2009. That compares with an average price of $2.88 a gallon in 2007.

Stockpiles of crude oil for the week ended Aug. 15 rose to 305.9 million barrels, an increase of 9.39 million barrels from the prior week, DOE said in its weekly inventory report.

In the same period, distillate stocks, including diesel, rose modestly to 132.1 million barrels, a 0.4% increase. Gasoline inventories, however, fell 3.1% to 196.6 million barrels.

“Stockpiles are ruling the price behavior right now,” said Global Insight’s Novak. “They’re pressuring prices down — both for the [refined] products and crude.”

Year-over-year, stockpiles of crude, diesel and gasoline have all declined, DOE data show.

However, the agency noted that at the same time, “total petroleum consumption has now declined for 12 consecutive months when compared with the same month” a year ago.

Most recently, demand, which DOE measures as the amount of refined products supplied to the marketplace, declined to 20.2 million barrels a day for the four weeks ended Aug. 15, a 3% decline compared with the same period in 2007.