Diesel Fuel Drops 1.9¢ to $2.582 for 5th Straight Weekly Decline

This story appears in the Oct. 12 print edition of Transport Topics.

U.S. retail diesel prices fell 1.9 cents to $2.582 a gallon last week in the fifth consecutive decline, a run that has seen the average cost of trucking’s main fuel fall 9.2 cents, the Department of Energy said.

Gasoline also dropped 3.1 cents to $2.468 a gallon, its eighth straight decline and a total retail price decline of 17.9 cents, DOE reported Oct. 5 after its weekly national survey of fueling stations.

One reason for diesel’s price weakness is the high level of inventories. Stocks of ultra-low-sulfur diesel stood at 100.2 million barrels on Oct. 5, just shy of its all-time high, while distillate supplies totaled 171.8 million barrels, the highest figure since 1983, according to EIA data.

“We hit a brick wall of falling demand for both fuels and increasing stocks, especially very high distillate reserves, that reversed the upward trend in spot and retail prices for both fuels,” Phil Flynn, senior energy analyst at brokerage firm PFGBest, Chicago, told Transport Topics.

“Stocks of distillates are so high now because demand for diesel, which is really a measure of the economy, is down so much,” Neil Gamson, economist at DOE’s Energy Information Administration, told TT. “Much more distillates are used for diesel than for heating oil, its other major use.”

“Diesel fell again because we’re in a ‘shoulder month’ when there’s not yet a lot of heating oil demand, which also comes from distillates, while we have very high stocks of both diesel fuel and distillates, higher than we’ve seen for a while,” Gamson said.

He added that it’s important to note that prices for both fuels have been fairly stable since the beginning of summer — unlike last year, when both raced to their all-time highs in July.

Retail diesel was selling for $2.572 a gallon on June 15 this year and hasn’t moved more than 10 cents in either direction since. Gasoline was selling for $2.672 on June 15, never went more than two cents higher and reached its current low in the EIA survey last week.

Truckers said they were much better able to cope with the stable prices of recent months than with  the sharp fluctuations last year.

Bob Ramorino, president of Roadstar Trucking Inc., Hayward, Calif., which runs 30 trucks within the state, said the stable prices this year “have been very helpful.”

“A year ago, we were paying nearly $5 a gallon, and initially, we were able to raise the fuel surcharge to cover it,” Ramorino told TT. “But then shippers imposed a uniform fuel surcharge on all loads, basing it on a national average, which wasn’t fair to us in California, where prices are always higher.”

Ramorino said that although fuel surcharges have dropped substantially, “We’re much better off this year.”

“Like a lot of other carriers, we really looked at our overall fuel programs when diesel was approach-ing $5 a gallon last year,” Dan Souza, vice president of maintenance and environmental affairs

of Mountain Valley Express Inc., Manteca, Calif., told TT. “We put some things into place that helped us manage then, and we continue to use now.”

Mountain Valley runs 155 tractors on both delivery and less-than-truckload routes, mainly in California.

Souza said that the firm began to buy diesel directly from a refiner rather than from “jobbers,” or wholesalers.

“We negotiated our direct price from the refiner and so were able to increase our buying power versus jobbers,” Souza said. “We started monitoring [Oil Price Information Service] rack prices and to monitor our fuel use.”

He said that Mountain View also joined the Environmental Protection Agency’s SmartWay program. “Joining SmartWay helped up focus on fuel economy and helped us with all of the price fluctuations of the past year,” Souza said.

On Sept. 26, 2008, ULSD supplies were at 68.3 million gallons and distillates were at 123 million gallons, far lower than last week, EIA said.

ULSD is a recent product that began showing up on EIA stock tables in 2004, so that its Sept. 18 total of 110.8 million barrels constituted its historic high.

Distillate supplies have not been so high since Jan. 14, 1983, when they stood at 175 million gallons.

Since EIA started keeping records in August 1982, its all-time supply high for distillates came on Dec. 10 of that year, at 186 million barrels.

American Trucking Associations estimates that the U.S. trucking industry burns 752 million gallons of diesel weekly and 285 million gallons of gasoline.

Analysts’ opinions differed on where fuel prices were heading.

“We think that we’ll have the same $2.60 a gallon diesel that we had for the summer quarter that just ended through the end of the year,” EIA’s Gamson said. “In the first quarter of next year, we see diesel going up about 6 cents a gallon, driven by both greater heating oil use and assumed economic recovery.”

In EIA’s “Short Term Energy and Winter Fuels Outlook,” published Oct. 6, the agency predicted that the average retail price of diesel for 2010 would be $2.78 a gallon, which it said was a 14.6% increase over the 2009 predicted average price of $2.43.

PFGBest’s Flynn said that he thought uncertainty over the price of crude, driven by concerns about the strength of the U.S. dollar in which all crude oil is priced, is propping up the price of diesel.

On Oct. 7, crude oil fell on the New York Mercantile Exchange when EIA released its fuel inventory reports showing high gasoline and distillate stocks, dropping to $69.57 a barrel at the close of trading, Bloomberg News reported.

“If the dollar strengthens, with such major distillate stocks and such low diesel demand, I can see the price of diesel collapsing,” Flynn said.