Diesel, Gasoline Prices Decline

By Frederick Kiel, Staff Reporter

This story appears in the Dec. 22 & 29 print edition of Transport Topics.

U.S. fuel prices continued their steep three-month declines last week, even as the cartel of oil-producing nations announced a record cut in production in an attempt to lift global oil prices in 2009.

The U.S. diesel average fell 9.3 cents to $2.422 a gallon, while the retail gasoline average dropped

4 cents to $1.659, the Department of Energy reported after its Dec. 15 weekly survey of fueling stations.

The dramatic fall in prices ap-pears to be taking the steam out of fuel conservation efforts fleets enacted. For example, the president of a Kansas fleet said he’s increased the maximum speed on his trucks’ governors.

“The fall in prices has been wonderful, unexpected and excellent,” Butch Bruenger, president of

M. Bruenger & Co., Wichita, Kan., told Transport Topics. “We lowered the speed on our governors from 70 miles per hour to 65 when the price of diesel got into the high $4s and even the low $5s at a few places,” Bruenger said.

“I don’t want to put any undue burden on our drivers, because a 65 [mph] limit can be a little dangerous, especially because they can’t pass anyone, so I raised it last week back to 68 miles, because diesel dropped so much,” he said.

The fleet runs 80 tractors and 200 trailers, the majority refrigerated.

Diesel’s weekly decline was the 11th straight, leaving it 88.7 cents a gallon below the corresponding week of 2007, and $2.342 below its all-time high of $4.764, set July 14. The average fell in all regions of the country.

Gasoline, meanwhile, was $1.339 lower than a year ago and at its lowest level since Feb. 16, 2004. The price was $2.455 cents below the all-time high set on July 7.

“Diesel is playing catch-up now,” Neil Gamson, an economist with DOE’s Energy Information Administration, told TT. “Diesel is more of a global fuel than gasoline, and since the global slowdown hit after the U.S. economy slowed down, it took longer for diesel prices to be affected by falling demand. Fall in diesel demand is starting to hit China now, for example, and now diesel will probably be falling faster.”

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

At that rate, truckers paid some $1.8 billion for diesel last week and about $473 million for gasoline. In comparison, truckers paid an estimated $3.6 billion for diesel the week it peaked and $1.2 billion for gasoline at its highest point this summer.

As fuel prices soared earlier in the year, many companies took steps to boost efficiency, including lowering the top speed on limiters.

For example, less-than-truckload carrier Con-way Freight said in March it was lowering its limiters to 62 mph from 65 mph. It projected the move would lower its diesel consumption by 3.2 million gallons annually. Parent company Con-way Inc. also said its truckload division was cutting top speed — to 65 mph from 70 mph (3-17, p. 1).

Experts have said that for every 1 mph in increased speed, there is a 2% increase in total fuel consumption.

Also last week, OPEC announced plans to reduce its oil production to 24.8 million barrels a day as of Jan. 1 — a drop of 2.46 million barrels a day, or 9%. That marks the largest production cut in the cartel’s history.

That same day, non-OPEC member Russia said it may reduce exports by 320,000 barrels a day next year if prices remain weak, Bloomberg News reported.

Despite this news, crude oil for January delivery briefly dipped below $40 a barrel on the New York Mercantile Exchange on Dec. 17, before closing at $40.06, the lowest settlement since July 13, 2004.

Meanwhile, however, crude for February delivery was trading closer to $45 a barrel. Still, that was down more than $100 a barrel from the record of $147.27 a barrel, set on July 11.

Analysts said they did not believe OPEC’s cut was big enough to overcome falling global demand, and there was some skepticism that members would stick to these lower limits, Bloomberg reported.

“They are facing the distinct possibility of oil falling to $30 a barrel and even lower,” Addison Armstrong, director of market research for Tradition Energy in Stamford, Conn., told Bloomberg. “They have to bring supply down further, be-cause they aren’t getting any help on the demand front until the second half of next year at the earliest.”