Diesel Jumps 2.1¢ to $3.534 for 11th Straight Increase
This story appears in the Feb. 21 print edition of Transport Topics.
The U.S. diesel average rose for the 11th straight week, this time by 2.1 cents a gallon, to $3.534, the Department of Energy said, making for an 11.8% increase since the end of November.
Similarly, the retail gasoline average increased for the 10th time in the 11 weeks, by 0.8 cent a gallon, to $3.14, DOE’s Energy Information Administration said after its Feb. 14 survey of fueling stations.
The last time both fuel averages were this high was Oct. 13, 2008. A year ago, diesel cost $2.756 a gallon and gasoline was $2.608.
Crude oil futures in New York remained significantly below their 28-month high close of $92.19 on Jan. 31. They started the week by dipping below $85 a barrel and closed at $86.36 a barrel on Feb. 17.
Usually such a decline in crude would be expected to lead to price decreases for refined products. However, an oil analyst for a major truck stop chain said that decline is not likely now because the Cushing, Okla., spot market — the basis for New York Mercantile Exchange oil futures — is not meshing well with the rest of the world oil market.
An oil glut there has generated crude prices that are significantly below other petroleum benchmarks, said Bruce Gress, director of risk management for Pilot and Flying J travel centers.
“There’s a glut there from Canadian oil and North Dakota, too, and it’s hard to get Cushing barrels to the Gulf Coast. I think U.S. refined products are following the rest of the world and not [West Texas Intermediate] at Cushing,” Gress said. He added that he has advised his customers to monitor the Great Britain’s Brent benchmark.
Regardless of oil market technicalities, fleet executives are feeling the pressure of rising prices.
“It’s a huge challenge,” said Rick Randall, operations manager for Pottle’s Transportation, Bangor, Maine. EIA said the New England region has the nation’s costliest diesel, at an average price of $3.749 a gallon.
Pottle’s administers two fuel surcharges, one based on EIA’s national average and another off the New England figure, Randall said. Pottle’s, a truckload carrier hauling paper, bottled water and food, also has engaged in hedging to stabilize its fuel spending.
Randall said the carrier’s fuel surcharges generally have been sticking because freight volumes have been good, but he also said he is pickier about which freight to accept and that the company is trying to minimize its empty miles, or deadhead, by closely monitoring revenue per total miles.
“If that stays up or increases, then we’re doing something right,” Randall said.
Melton Truck Lines, Tulsa, Okla., has its headquarters in the Midwest region, where the average is $3.479, the least expensive reading. Melton Chief Financial Officer Robert Ragan said the prices are worrisome, but a better freight environment takes away some of the sting.
The carrier became extremely mileage-conscious during the 2007 price run-up, and Ragan said it is bad management “to run hot and cold” on the issue. “You can’t just ignore all of this whenever the price drops,” he said.
“We expect our shippers to work with us and pay a fuel surcharge, and they’re generally sticking now, but we owe it to our shippers to maximize our fuel efficiency,” Ragan said, adding that he is extremely aware that a diesel price spike can lead to carrier bankruptcies, and he cited the work of stock analyst Donald Broughton of Avondale Partners.
Pilot/Flying J’s Gress said the fundamentals of the oil and diesel markets show plenty of domestic supply relative to demand, both for crude and refined products. EIA reported that refinery utilization slowed to 81.2% on Feb. 11, down from 84.7% the week before. However, Gress also said such fundamentals drive prices far less than in the past.
