Diesel, Gasoline Prices Gain After Midwest Refinery Issues

This story appears in the May 27 print edition of Transport Topics.

Diesel and gasoline prices continued their upward paths last week, the Department of Energy reported, with analysts blaming the gains on refinery issues.

The U.S. diesel average gained 2.4 cents a gallon to $3.89, the second straight increase, DOE’s Energy Information Administration said May 20. Diesel gained 2.1 cents the week before.

Regular gasoline jumped 7 cents to $3.673 a gallon. Gasoline has increased a total of 15.3 cents over the past three weeks.

Refinery problems in Illinois, Indiana, Kansas and Oklahoma led to higher prices, particularly in the Midwest, according to the Oil Price Information Service.

“Prices in the Midwest are a supply-driven problem, with planned maintenance coinciding with unplanned problems, so supply thinned out,” said Denton Cinquegrana, who

follows U.S. refined products for OPIS.

The Midwest diesel average rose 2.5 cents to $3.934, or 4.4 cents a gallon above the national figure. It is the only region of the United States where diesel is higher than a year earlier.

However, Cinquegrana predicted the refinery problems would likely be temporary.

“Relief is already coming from Gulf Coast production, so this will prove to be just an episode, not a full movie,” he said of the Midwest disruptions.

A year ago, the diesel average stood at $3.956 and gasoline was $3.715 a gallon. Diesel and gasoline hit their high points for 2013 on Feb. 25 at $4.159 for diesel and $3.784 a gallon for gas.

Even though diesel’s increase was much smaller than gasoline, management at flatbed hauler WTI Transport said it is a significant issue.

“We have almost 400 trucks, they get 6 to 6.5 miles per gallon, and we’ll put about 2,000 miles a week on a tractor. Because these are such massive quantities, a couple of cents a gallon can be very dramatic and adds up quickly,” said Darren Lee, vice president of operations for WTI, a division of Boyd Bros. Transportation in Tuscaloosa, Ala.

Likewise, Edmund Doss, president of Deep South Freight in Birmingham, Ala., said any price swing can be particularly difficult for trucking fleets.

“It’s the rapid change that really concerns us.” Doss said.

He said he is trying to shield his regional dry van carrier from price swings by reviewing fuel needs and preparing a detailed proposal for seeking bids from truck stop chains.

“We’re trying to designate specific fueling stops in each lane, such as Birmingham to Houston. We’re comparing the density of our lanes with fueling options, and then we’ll negotiate with distributors,” said Doss, whose truckload carrier has 50 power units.

OPIS’ Cinquegrana said a general balance between supply and demand makes for a relatively “boring” diesel market, and there is no indication yet that the recent increases are the beginning of a significant run-up.

“The recent increases are not going to be part of a huge or massive diesel spike. Diesel has been pretty flat and boring recently — which is probably a good thing if you use it,” he said.

EIA reported May 22 that crude oil supplies fell to 394.6 million barrels as of May 17. But that is not too far below the 395.5 million barrels reported two weeks ago, which was the highest reading in more than 30 years, according to EIA.

The agency also said the national stock of ultra-low-sulfur distillates was 97 million barrels for the week ended May 17, a mid-level supply relative to the past three years.

On the New York Mercantile Exchange, crude oil futures closed at $94.25 a barrel May 23, down from $96.71 at the start of the week.

Over the past year, NYMEX oil closed as low as $77.69 on June 28 and reached a high of $99 on Sept. 14.