Diesel Jumps 9.6¢ to $2.801
This story appears in the Nov. 2 print edition of Transport Topics.
U.S. diesel prices continued to surge as the national average rose another 9.6 cents a gallon to $2.801 last week, the highest level in nearly a year, the Department of Energy said.
At the same time, the average price of a gallon of gasoline in-creased another dime, the third straight weekly increase.
Early last week, crude oil retreated below $80 a barrel on the New York Mercantile Exchange as DOE reported expanding inventories of crude and gasoline. News of third-quarter growth in U.S. gross domestic product — heralding the probable end of the recession — pushed oil futures toward the $80 mark on Oct. 29, but not over it.
Diesel had been drifting down from Aug. 31 to Oct. 5, when it hit $2.582. Since then, it has risen by 21.9 cents a gallon over three weeks, but diesel is still cheaper than a year ago, when it stood at $3.288 on Oct. 27, 2008.
Gasoline hit $2.674 a gallon in the Oct. 26 weekly survey by DOE’s Energy Information Administration. Gasoline is slightly higher than it was a year ago, when it stood at $2.656, but still lower than its 2009 high of $2.691 on June 22.
“Diesel is keeping up with the jump in crude oil,” said Bruce Gress, director of petroleum risk management for Pilot Travel Centers, Knoxville, Tenn. He noted that crude rose sharply from Sept. 24 to Oct. 21, gaining 23.5% in price over nearly four weeks. Taking the per-barrel crude price and converting it to gallons means the basic raw material for diesel rose by 36.9 cents a gallon during that time.
Sudden price hikes are particularly painful for Robinson Transport of Salina, Utah, said company President Kim Robinson.
“We don’t get good mileage to begin with,” said Robinson, who is also president of the Utah Trucking Association. His 75 company trucks haul 129,000-pound loads of coal over and around the Wasatch Mountains in the extreme temperatures of blistering summers and frigid winters.
“We get about 4.2 to 4.5 miles per gallon and burn 12,000 gallons a day,” Robinson said. For more typical gross vehicle weights of 80,000 pounds or less, highway tractors will usually get about 5-6 mpg.
As a result, Robinson said he pays careful attention to spec tractors and trailers for aerodynamic efficiency. He also said the company will switch engine suppliers in 2010 and that fuel economy will be a big part of the decision.
An executive with Carlile Transportation Systems said the company looks at fuel surcharges in several modes of transportation and sees that transportation providers always find the mechanism wanting during sharp, extended price increases.
“No one recovers all of their costs with a fuel surcharge,” said Bob Benjamin, director of pricing for Carlile in the company’s Tacoma, Wash., office. The company deals with truck-rail intermodal, truckload, less-than-truckload and three types of ocean carriage.
In addition to its work as a freight forwarder and consolidator, Carlile runs 100 trucks in Alaska, its home state. Benjamin said oil companies are major shipping customers, and Carlile delivers oil-field equipment for them, but said this leads to a peculiar situation for the carrier.
“When diesel prices go up, it’s bad for us because we have higher expenses, but it also means more freight,” Benjamin said, explaining that higher oil prices lead oil companies to do more work in Alaska.
Pilot’s Gress emphasized that oil pricing goes beyond supply and demand fundamentals for crude oil and refined products.
“What we’re seeing now has more to do with investment flow and foreign currency exchange. As the U.S. dollar weakens, investment goes from there into commodities. Oil is more of an investment now,” Gress said.
An investment portfolio manager discussed the issue with Bloomberg News after EIA said U.S. gasoline inventories expanded unexpectedly by 0.8% from Oct. 16 to Oct. 23.
“People are getting very tired of waiting for the Wall Street bounce to turn into a Main Street bounce,” James Cordier of OptionSellers.com in Tampa, Fla., told Bloomberg. “And the small run-up in gasoline prices choked off any demand.”
“Everyone expected gasoline to be a lot tighter, but the reality is demand is weak and you had higher production,” said Sander Cohan, an analyst with Energy Security Analysis Inc. of Wakefield, Mass., in the same report.
Domestic refineries increased operating rates by 0.7 percentage point to 81.8% on Oct. 23 from the week before, EIA said, but still
3.5 percentage points below the year-ago level. At the start of 2004 the utilization rate was 91.3%.
U.S. ultra-low-sulfur distillate stocks declined to 95.5 million barrels on Oct. 23, but are still at very high levels that Gress characterized at “obese.”
