Diesel Increases 3.8¢ to $4.127, for Ninth Consecutive Gain

This story appears in the Sept. 10 print edition of Transport Topics.

Retail average diesel fuel prices rose 3.8 cents last week to $4.127 a gallon — the ninth straight increase — the Department of Energy reported, as the oil industry in the Gulf Coast dealt with the aftermath of Hurricane Isaac.

The nine-week run-up has increased the cost of trucking’s main fuel by almost 48 cents a gallon, DOE said after its Sept. 3 survey of fueling stations.

Diesel now has been above $4 a gallon for three straight weeks and is 25.9 cents higher than a year ago.

DOE also reported that the average price of regular gasoline increased 6.7 cents to $3.843 a gallon, a nearly 49-cent increase in nine weeks. Last year, a gallon cost $3.674, DOE said.

Analysts attributed the increases to a trio of factors: Hurricane Isaac, lower-than-normal supplies of distillate stocks and higher crude oil prices. “There’s some flooding at several [refineries], so that’s . . . been the major issue down there,” Timothy Hess, analyst for DOE’s Energy Information Administration, told Transport Topics on Sept. 5. “The storm is gone, but the flooding doesn’t subside quite as easily.”

Hess said a Phillips 66 refinery in Belle Chasse, La., was still without power and several other refineries in the region were operating at reduced rates.

In addition, the storm hit at a time when distillate inventories have been in a lower-than-normal range, which already was putting pressure on diesel prices, said Phil Flynn, senior market analyst for Price Futures Group in Chicago.

The DOE’s Sept. 6 inventory report said U.S. distillate stocks stand at 127.1 million barrels, down nearly 19% compared with inventories at this time last year.

“And what the refiners are going to do, because the margins are so high on the gas side, they’re going to [produce gasoline] at the expense of diesel, and there’s a concern that they’ll run the diesel supplies down,” Flynn said.

For Patrick McCabe, president of EverGreen Industries, a flatbed fleet with 70 units in Liberty, Miss., that runs in more than 30 states, the diesel increase is occurring as business has softened.

“It’s never a good time, but you certainly don’t want to see [higher prices] in a softening market be-cause it just takes away your leverage to be able to increase your rates,” McCabe said.

McCabe, vice chairman of the Mississippi Trucking Association, said his firm has a fuel surcharge in place and has invested heavily in fuel-saving measures.

“We have [auxiliary power units] on our trucks to prevent idling; we run super single tires [and] aerodynamic trucks,” he said.

The carrier first started taking those steps to save fuel six years ago, when the fleet averaged about 6 miles a gallon, McCabe said. Today, the mpg is at 6.5 to 6.6, he said.

“In this business, moving your fuel economy even just one-tenth of a mile per gallon, when you spread that out across your trucks over the year, it amounts to a lot of money,” said McCabe, whose father, John, founded the firm 22 years ago.

J.H. Walker Trucking, Houston, also uses fuel surcharges to help it recover costs, said Johnny Walker, the firm’s president.

“So if the price of fuel goes up a nickel, our prices go up basically a nickel, every week,” Walker said.

Though shippers frequently push back against an increase in the surcharge, Walker found that explaining the issue usually helps.

While Walker loses money when prices increase before DOE’s national average price reflects them, he said the opposite happens when prices drop.

“You take the good with the bad,” he said.

Hess, the EIA analyst, said diesel price surges are the result of cumulative price increases in crude oil that start weeks before they register at the pump.

“You’ve seen a pretty steady run-up over the last couple of months, so product prices are still catching up a little bit to crude oil prices,” Hess said.

And crude prices have been advancing slowly but steadily since Aug. 2, when they went back over $90 a barrel.

Crude closed at $95.53 a barrel on the New York Mercantile Exchange on Sept. 6. Last year, at the same time, crude closed at $89.21 a barrel.

Staff Reporter Timothy Cama contributed to this story.