Diesel, Gasoline Prices Dip as Economic Growth Cools

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

The national price averages for retail diesel and gasoline declined moderately last week, as falling crude oil prices, rising petroleum inventories and bad news about housing suggest there is no pressure to cause a sustained increase in the cost of U.S. refined products.

The diesel average dipped 2.2 cents a gallon to $2.957 on Aug. 23, after falling 1.2 cents the week before, the Department of Energy said. A year ago, the diesel average stood at $2.668.

On Aug. 24, one-month crude oil futures closed below $72 a barrel on the New York Mercantile Exchange for the first time since July 6. Crude started sliding after Aug. 3, when it closed at $82.55. The oil price closed at $73.36 a barrel on Aug. 26.

DOE’s Energy Information Ad-ministration also said on Aug. 23 that the gasoline average fell 4.1 cents a gallon to $2.704, after dropping 3.8 cents the week before. The average price of gas was $2.628 a year ago.

While fuel always will be of major concern to fleet executives, for now it is stable enough that it is not causing significant difficulty, said Kevin Burch, president of Jet Express Inc., Dayton, Ohio.

“The arena has changed, and we’re now more in tune with shippers that we can’t haul freight without a fuel surcharge. Now, we all pretty much have surcharge programs that we didn’t have back in the day, 10 to 15 years ago,” said Burch, the immediate past chairman of the Truckload Carriers Association.

Burch said many of the carriers that have not been able to adopt fuel surcharges have been “washed away.” However, Burch also said he is increasingly mindful about the need to govern engine speed, both for his company trucks and owner-operator vehicles, so as to not waste fuel and money. He also said price volatility has decreased, which makes his job as a manager easier.

Bloomberg News reported Aug. 23 that traders for hedge funds have substantially reduced their speculation that gasoline prices will rise. Con-way Inc. executive Randy Mullett said that less speculation could be a good sign for petroleum users.

In his position at Con-way, Mullett has spoken about commodity speculation on behalf of American Trucking Associations.

“Earlier this year, we said the only factor unaccounted for that was keeping oil prices high was extreme speculation by large institutional investors (July/August, EMU, p. 1). There was much more supply than demand, but speculation was driving the price of oil,” Mullett said.

If hedge funds and other large investors move their money from oil speculation into other investments over the long term, he said, it should reduce some of the price volatility for crude oil and refined products.

“Fuel will always be a concern for trucking companies because it’s a major expense, but it’s the wildly swinging prices that put us in a tough position with the users of our services,” Mullett said.

“Oil is pretty stable now and is moving in direct correlation with the economy, which has just been bumping along,” said Bruce Gress, director of petroleum risk management for Pilot and Flying J truck stops, Knoxville, Tenn.

Gress cited the news on housing, with sales of existing U.S. homes plunging 27.2% in July and sales of new homes falling 12% the same month, as an example of economic “malaise.”

“Demand for oil is good in China, India and Brazil, but here and in the rest of the developed world, it’s not doing much,” said Gress, whose company runs almost 600 truck stops in the United States and Canada.

Atlantic hurricanes, Gress said, could affect supply through the end of September, but other than that, there are no obvious threats looming.

“The economy and overall business conditions are not giving prices much of a push,” he said.

Economist Tavio Headley follows petroleum for American Trucking Associations and said that, while current prices are high by historical standards, around $2.80 a gallon for diesel might be the new floor for fuel.

“From the third quarter of 2008 through the second quarter of 2009, you had four consecutive quarters of contraction for gross domestic product,” Headley said. “In spite of that extensive demand destruction, the price of diesel still averaged $2.80 a gallon during that time.”

In other weekly statistics reported by the Energy Information Administration, the U.S. refinery utilization rate fell to 87.7% on Aug. 20 from 90% the week before.

The nation’s inventory of ultra-low-sulfur diesel fuel remained at 109.4 million barrels, making Aug. 13 and 20 the two highest supply levels since the fuel standard switched to ULSD in the fall of 2006.

Bloomberg News said the last time total distillate stocks were this high was January 1983, shortly after the nation exited a severe recession.

U.S. crude oil and gasoline stockpiles also rose from Aug. 13 to Aug. 20, EIA said.