Diesel Fuel Slips 1.6¢ to $3.87 on Growing Crude Supplies
This story appears in the Nov. 4 print edition of Transport Topics.
The abundant supply of domestic oil helped push U.S. diesel prices down for the sixth time in seven weeks, as trucking’s main fuel dipped 1.6 cents a gallon to $3.87, the Department of Energy said.
Gasoline dropped more sharply, by 6.6 cents a gallon, to $3.294, its lowest level since Dec. 24, DOE’s Energy Information Administration said after its Oct. 28 survey of fueling stations.
Diesel and gasoline are following the price of oil downward because of high levels of domestic oil production, said EIA analyst Timothy Hess.
“What we’re dealing with now is a lot of oil coming out of the U.S.,” he said. Oil and fuel prices “are not being driven by geopolitical issues” but by “U.S. oil production.”
Hess said there is room for retail diesel to drop to roughly $3.75 a gallon by early next year.
Diesel has dropped a total of 11.1 cents since Sept. 9, according to EIA figures. It has fallen each week since then, other than the week of Oct. 21, when the national average price was unchanged. A year ago, the retail diesel average was $4.03.
EIA also said gasoline dropped for the seventh time in eight weeks, making for a combined 31.4 cents over the period. The gasoline average was $3.568 the corresponding week in 2012.
Crude oil futures have been dropping on the New York Mercantile Exchange. Nymex crude closed at $96.38 a barrel Oct. 31, or more than a dollar cheaper than the close for the previous week.
The 12-month high for crude was $110.53 a barrel Sept. 6.
Fleet managers said they have enjoyed the decline in fuel prices, but they remain committed to their plans to insulate their companies from potential price hikes.
“Every time there’s a $1 change in a barrel of oil, it creates a 4-cent change in the pump price,” said Ron Faulkner, owner and president of Faulkner Trucking in Tulare, Calif.
“I watch [oil and diesel] prices every day. I track them down to a tenth of a penny — you have to,” said Faulkner, whose 50 power units pull dry vans and flatbeds loaded with general commodities throughout the West.
The carrier has a cost-plus pricing arrangement with Love’s Travel Stops, wherein he pays 3 cents a gallon more than Love’s total cost. He lectures his drivers not to idle or stomp the accelerator when starting from a full stop and pays them bonuses when they’re thrifty.
Faulkner said that when he was paying $3.85 a gallon in mid-October, diesel was costing him 65 cents a mile, or more than a third of what he has to pull in on freight rates to break even.
Larger fleets are not immune to the need to plan on fuel.
“Ruan has a long tradition of seeking and implementing strategic fuel-conservation measures, which not only controls costs, but helps protect the environment,” said CEO Steve Chapman of Ruan Transportation Management Systems.
The Des Moines, Iowa, bulk hauler and provider of dedicated contract carriage utilizes a variety of strategies, including idle-reduction and auxiliary power units, low-viscosity lubricants, reduced highway speeds, lightweight equipment and driver training.
Ruan also has a heavy-duty fleet of compressed natural gas-powered trucks for hauling dairy products in Indiana that eliminates the need for 1.8 million gallons of diesel a year.
Ruan ranks No. 38 on the Transport Topics Top 100 list of largest U.S. and Canadian for-hire carriers.
An Oct. 30 report from EIA said U.S. stocks of crude oil increased, while diesel and gasoline decreased.
The crude oil inventory grew to 383.9 million barrels Oct. 25, or 4.1 million more than the previous week.
The stock of ultra-low-sulfur distillate oil, the basis for diesel, dipped to 99.5 million barrels from 101.7 million the previous week. The consumption of all distillates jumped sharply to 4.16 million barrels a day from 3.33 million barrels a day during the previous week.
The total motor gasoline stock also dipped to 213.8 million barrels from 215.5 million the previous week.
Bloomberg News said refineries are benefiting from the lower price of crude oil inputs. The profit margin for refiners, known as the “crack spread,” climbed to the highest level since August, the wire service said.
The profit to process three barrels of oil into two barrels of gasoline and one of distillate fuels, based on Nymex futures, rose to $18.24 a barrel Oct. 30.
“This should lead to an end of the precipitous declines in product supplies” as refineries increase activity, John Kilduff, a partner at Again Capital, a New York hedge fund, told Bloomberg.
