Diesel Hits Record $3.552 a Gallon

By Frederick Kiel, Staff Reporter
This story appears in the March 3 print edition of Transport Topics.

The average retail price of diesel fuel jumped 15.6 cents a gallon to a new record of $3.552 last week, more than 10 cents above the previous record, which was set Nov. 26. 
Analysts cited high demand for heating oil and the surge of crude oil prices to new record levels for the jump in diesel prices.

The average diesel price is now $1.001 a gallon more than the corresponding week last year, the Department of Energy said Feb. 25, after its weekly national survey of filling stations.

At the same time, gasoline gained 8.8 cents to a national average of $3.13 a gallon. The 42.2-cent spread between diesel and gasoline is the largest gap since October 2005.

“Retail diesel prices have risen much faster than gasoline because, in addition to crude’s rise, national distillate stocks are skittering near their five-year low level,” Mary Novak, managing director of energy services at the consulting firm Global Insight, told Transport Topics.

Distillates are the crude-oil product from which refiners make both diesel and home heating oil.

“With several more weeks of cold weather, refineries have to produce more heating oil and therefore less diesel from a decreased inventory,” Novak said. “Gasoline stocks, on the other hand, are comfortably high.” 

The price of crude closed at $100.88 a barrel Feb. 26 on the New York Mercantile Exchange. It was only the second time on the New York exchange that crude closed above $100; on Feb. 19, it closed at $100.01, Bloomberg said.

Crude hit a high of $102.08 a barrel in intraday trading Feb. 27, before closing at $99.70.
Retail diesel rose even higher in some regions, hitting an average of $3.71 a gallon in New England, $3.693 in the central East Coast and $3.672 in California, DOE said. The jump last week followed an 11.6-cent rise the previous week.

Retail diesel hit its previous high Nov. 26 at $3.444 a gallon. 
“The increase in diesel price is very discouraging for truckers, especially smaller ones,” said David Owen, president of the National Association of Small Trucking Companies. “Large companies have been able to hedge fuel costs, which the smaller guy can’t do. The rise in diesel has taken nearly all the profit out of the business, and most of our members are . . . merely treading water.”

Owen said fuel had passed driver costs as the largest expense for truck firms about 18 months ago and is now more than twice the cost.

“Even at $3 a gallon, with a truck getting five miles to the gallon, it cost our members 60 cents in fuel to run one mile and half of that for the driver,” Owen explained. “That means truckers, especially with the latest hike, have a cost of nearly $1 per mile, without even adding in truck payments, maintenance and insurance.”

Arkansas Trucking Association President Lane Kidd agreed.

“The only saving grace for a large trucking company [with a diesel price hike] may be the ability they have to draw on reserves or to negotiate a slightly lower price through a large-volume purchasing contract,” Kidd told The Associated Press Feb. 22.

At the price last week, it cost a trucker $710.40 to purchase 200 gallons, $200.20 more than the same week in 2007.

DOE data showed that U.S. distillate stocks totaled 120 million barrels on Feb. 22, compared with the highest level reached in 2007 of 142.6 million barrels. 
Energy analysts said the oil market was being driven by speculation that the price would continue climbing.

Just three weeks ago, DOE predicted diesel would peak in April and May at just over $3.30.
“Right now, crude prices are in a mania,” Phil Flynn, senior market analyst at Alaron Research, told TT. “I was in the same boat with everyone else, thinking there would be a cut in prices this month.”

Flynn said that traders are looking at crude “as an investment vehicle as a hedge against the falling dollar and inflation, rather than a commodity with supply and demand.”

Doug MacIntyre, analyst at DOE’s Energy Information Administration, cautioned against blaming it all on traders. “In the end, traders have to follow the overall pattern of prices, so that they’re more of a symptom than a cause of price increases.”