By Michael G. Malloy, Staff Reporter This story appears in the Dec. 8 print edition of Transport Topics.
A decision by the OPEC oil cartel to maintain its production levels sent crude oil prices plummeting to five-year lows, which sent U.S. retail diesel and gasoline average prices tumbling, too.
The Department of Energy reported Dec. 1 that the diesel average fell 2.3 cents to $3.605 a gallon, its lowest point since Feb. 21, 2011. Likewise, gasoline’s price dropped 4.3 cents to $2.778, the cheapest it has been since Oct. 4, 2010.
The most recent declines at the pump followed a Nov. 27 announcement by OPEC to hold production at 30 million barrels a day, rather than reduce output in light of slumping global prices that have plunged about $40 since June.
After the cartel’s meeting, futures prices on the New York Mercantile Exchange dropped more than $7 to just above $66 a barrel, the lowest closing price since September 2009. Crude futures held under $70 last week in New York.
Falling oil prices are “a good sign and should help break the back of high diesel prices on a relative basis to crude oil going forward,” said John Kilduff, a partner with Again Capital in New York.
Kilduff said he expects crude oil to steadily decline into the $50s per-barrel during the first quarter, which “should drag diesel prices down with it.”
Diesel fell in all five national regions, led by a 4.1-cent drop in the Midwest to $3.702, after a 16-cent spike in that region last month propelled the only national average price increase since June.
After bottoming out at a record low in mid-November, Midwest distillate inventories, which include diesel, rose 8.2% by the end of the month to 23.7 million barrels, DOE reported last week.
Diesel’s pump price was 27.8 cents below a year ago, while gasoline was 49.4 cents less than the corresponding week last year.
An Oklahoma City station was selling gasoline at $1.999 a gallon last week, marking the first time the motor fuel has been less than $2 since July 2010, Bloomberg News reported.
About 15% of U.S. filling stations are selling gas for less than $2.50 a gallon, and more may soon be selling it for less than $2, Gregg Laskoski, an analyst with GasBuddy, told Bloomberg.
At the same time, diesel was “staying stubbornly high” compared with the more rapid drops in oil and gasoline because of relatively low levels of distillates and because refiners can make bigger profits from producing diesel than from gasoline, Kilduff said.
“A gallon of diesel fuel is much more valuable — that’s why the price is higher,” he told Transport Topics. “There’s a lot of room, theoretically, for diesel prices to come down.”
DOE said in a separate report last week that distillate supplies rose by 3 million barrels in the last week of November.
“We needed to see a build in distillate inventories,” Kilduff said. “That was sorely needed and really good news if you’re a trucker.”
Crude oil inventories fell by 3.7 million barrels for the week ended Nov. 28, while gasoline supplies also rose.
Overseas, OPEC continued its high crude oil production last month, producing 30.56 million bbd and exceeding its 30 million bbd production target, although that was down about 400,000 bbd from October, Bloomberg reported.
Back in the United States, domestic oil production hit 9.08 million bbd for the week ended Nov. 21, the highest since DOE’s Energy Information Administration began collecting weekly data in 1983.
