Diesel Hits Four-Year High

This story appears in the Oct. 22 print edition of Transport Topics.

The retail diesel average price hit its highest level in more than four years last week, rising 5.6 cents to $4.15 a gallon, the Department of Energy reported.

It was diesel’s second straight increase, leaving commercial trucking’s main fuel at its highest point since August 2008, when the nation was slipping into recession and diesel was tumbling from a record high of $4.764 a month earlier.

One year ago, the diesel average price was $3.801 a gallon, DOE said after its Oct. 15 survey of fueling stations.

Low inventories of distillate — the portion of the oil barrel that yields diesel and heating oil — is the main reason why diesel has remained more than $4 a gallon for nine weeks, analysts said.

“Diesel fuel stocks have been considerably low the last few months, and when they’re that low, essentially, the market’s really tight,” said Sean Hill, an oil industry analyst with DOE’s Energy Information Administration.

As of Oct.12, the United States had 118.7 million barrels of distillate on hand, compared with 128.6 million barrels five weeks earlier and 149.7 million barrels in October last year, DOE said.

“Those lower inventories are driving prices at this stage, more than colder temperatures,” Hill said.

DOE also reported last week the average regular gasoline price dropped by 3.1 cents to $3.819 a gallon. Gasoline had increased 4.6 cents the previous week, which ended a string of two straight declines. Gasoline was $3.476 during the same week in 2011, DOE said.

At 33.1 cents a gallon, the price spread between diesel and gasoline was the widest since a 36.9-cent spread on Feb. 20. Analysts said the current spread is wider than normal for this time of year.

The spread also probably will widen in coming months as diesel prices rise even higher to meet winter and global demands, said Tom Kloza, chief oil analyst at Oil Price Information Service in Wall, N.J.

Kloza said global demand for diesel is intensifying, and the United States is helping meet it.

“One in every five barrels of diesel that’s produced in this country is probably going offshore,” he said.

Gasoline prices historically soften in autumn as the traveling season ends, while diesel prices strengthen as refineries produce heating oil.

Harvest season in the Midwest also put pressure on diesel prices nationally, truckers said.

“We have a lot of farmers who start to burn fuel about harvest time, and every year, it seems everybody gets surprised by it,” said Roger Amhof, who with his brother, Randy, owns Amhof Trucking Inc. in Eldridge, Iowa. Their 85-unit fleet specializes in niche markets such as farm equipment.

The price of Midwest diesel spiked 11 cents a gallon last week, pushing the average price in the region to $4.15 a gallon, DOE said.

“All the farmers are in the field, and . . . the harvesting equipment nowadays is diesel-powered, so we experience this every year,” said Kevin Gass, senior vice president of transportation for Perishable Distributers of Iowa.

Both Gass and Amhof are on the Iowa Motor Truck Association’s board of directors.

Amhof credits rising fuel prices four to five years ago with putting his firm on the path to lower fuel consumption. One of his first moves was to lower the speed limit on his trucks to 65 mph from 68 mph.

“It increased our fleetwide performance . . . 0.3 to 0.4 of a mile per gallon fleetwide,” Amhof said.

He also equipped all his trucks with battery-powered heating and cooling units to cut down idling time.

“Our average idle time used to be up in the 45%-to-50% range . . . at times of the year,” Amhof said.

There are limits, though, to what he can do to save fuel, he said.

“Being a flatbed carrier, a lot of our loads are not friendly as far as aerodynamics is concerned,” he said. “We do a lot of farm machinery; sometimes pulling that down the road’s like pulling a big sail.”

Meanwhile, crude oil prices are stable. Crude oil on the New York Mercantile Exchange closed at $92.10 a barrel on Oct. 18, down from $92.12 a day earlier and $88.34 a year earlier.