Diesel Fuel Price Falls 6.4¢ to Below $4 a Gallon

This story appears in the May 30 print edition of Transport Topics.

The average cost of a gallon of retail diesel fell 6.4 cents to $3.997 a gallon last week, the largest weekly drop in a year, the Department of Energy reported.

Diesel has fallen four of the past five weeks but is still 97.6 cents a gallon more expensive than in the same week of 2010, DOE reported after its May 23 survey of filling stations. Last week’s drop was the largest since a 7.3-cent decline on May 24, 2010. The retail gasoline average, meanwhile, sank 11.1 cents to $3.849. It was the gas average’s steepest week-to-week decline since December 2008. Gasoline has fallen 11.6 cents over the past two weeks but is $1.063 higher than a year ago.

The big drops at the pump were due to “lower crude oil costs,” DOE analyst Neil Gamson said May 24. Typically a month passes before a change in the price of crude oil is reflected at retail pumps, he added.

On May 25, oil futures on the New York Mercantile Exchange closed at $101.32 a barrel — about $11 a barrel cheaper than at the beginning of the month, according to data gathered by Bloomberg News.

Although retail fuel prices are declining, carriers said they continue to monitor fuel costs in their own operations —and their customers.

The fuel manager for H.O. Wolding, a truckload carrier based in Amherst, Wis., said investing in route-optimization software has helped the company save on fuel. The software builds delivery routes based not only on the most direct route to the customer but on the location of filling stations where H.O. Wolding has negotiated volume discounts.

That approach keeps drivers from roaming too far from major interstate corridors in search of fuel, said Arne Nystrom, H.O. Wolding’s fuel manager.

He said that if the software that H.O. Wolding bought can build a route that is 10% shorter than the route the carrier had been using, “it’s a significant reduction in fuel costs.”

An official at another carrier that hauls refrigerated freight said the carrier has cut fuel costs as a result of customers tweaking their own operations. Some temperature-sensitive shippers, for example, have made concessions to carriers by allowing higher in-trailer temperatures.

“We had one customer that went from minus 10 [degrees Fahrenheit] to zero on frozen shipments,” said Chris Hummer, vice president of Don Hummer Trucking in Oxford, Iowa. “If there’s a temperature that might be more fuel-efficient and won’t compromise their products, [shippers] are considering that.”

Trailer refrigeration units are typically powered by small diesel motors. The colder a shipper wants its trailer kept, the more fuel a carrier has to burn in its refrigeration unit. The cost of this diesel, which reefer puller C.R. England pegged at about 8 cents a mile, is usually not recoverable via fuel surcharges.

Meanwhile, despite recent decreases in DOE’s national retail fuel averages, there were signs last week of tightening distillate supply and increasing consumption.

Crude oil futures rallied late last week after a DOE inventory report revealed that distillate fuel inventories fell to a two-year low and consumption increased.

Distillate inventories fell to about 141.1 million barrels in the week ended May 21, a drop of 2 million barrels from the end of the previous week, DOE said in its weekly supply report. Despite the tumble, distillate stockpiles are still at the high end of DOE’s five-year average range, agency data show.

Demand, which DOE measures as product supplied, rose to 3.98 million barrels a day, a 10% increase from the prior week.

Another DOE demand indicator revealed that, year to date, 11.58 billion gallons of ultra-low sulfur diesel have been delivered to local points of consumption. That’s a 13.6% increase over last year’s ULSD deliveries, DOE said May 23.

Despite the apparently bullish news for oil markets last week, DOE’s Gamson said that the agency still expects diesel “prices continue to fall at least through the summer until at least the heating season begins.”

Also last week, news services reported that U.S. commodities regulators filed suit against several oil traders and oil trading firms for allegedly manipulating markets in 2008, the year that prices for all transportation fuels hit record highs.