Diesel Price Up 3.7¢ to $3.919, Marking First Gain in 8 Weeks
This story appears in the June 30 print edition of Transport Topics.
U.S. retail diesel prices reversed direction last week and followed increases made by crude oil, marking the first gain for trucking’s main fuel in eight weeks, the U.S. Department of Energy reported.
The average price of diesel hit $3.919 a gallon June 23, a 3.7-cent hike over the previous week. A year ago, fuel was cheaper by 8.1 cents, DOE’s Energy Information Administration said.
As for regular gasoline, EIA said that average added 1.8 cents a gallon, rising to $3.704. It was the second consecutive increase for gas and the fifth in nine weeks.
Gas is 12.7 cents a gallon more expensive than the same week a year earlier.
Meanwhile, crude oil prices remain high largely for two reasons: Internationally, there are fears of supply disruptions stemming from fighting in Iraq and Syria; and domestically, export controls are easing.
The U.S. Department of Commerce said oil companies may export more lightly processed oils, including crude where volatile gases have been removed. Pure, unprocessed domestic crude cannot be exported.
“Nymex diesel and oil and Brent crude have been heading up because of geopolitical events in Iraq,” Brad Simons, president of the Pathway Network for trucking services, said of three major petroleum benchmarks. “But U.S. crude production, mainly from fracking, has increased so much that it has helped keep a lid on.”
Simons said wholesale U.S. diesel pricing has increased by less than crude oil contracts because the domestic petroleum market is more stable.
Denton Cinquegrana, chief oil analyst for Oil Price Information Service, said he thinks the Middle Eastern political situation will probably get worse, and that will increase oil prices, but the United States does have some advantages now that it did not have a decade ago.
“Crude oil production was somewhere between 5 [million] and 5.5 million barrels a day then. Now we are on the doorstep of 8.5 million barrels a day — the highest since late October 1986. On top of that, our imports from Iraq are pretty low,” Cinquegrana said.
The highest price for diesel in the past 12 months was $4.021 on March 10. After that, the retail average wafted down in 12 of 14 weeks to $3.882 a gallon on June 16.
In contrast, futures contracts on the New York Mercantile Exchange have risen for most of this year, closing at $105.84 a barrel on June 26. Oil often closed below $95 in January.
The Commerce Department’s approval of exports of lightly refined oil stems from requests by Pioneer Natural Resources Co. and Enterprise Products Partners, Bloomberg News reported.
As for refinery capacity, EIA said that, as of Jan. 1, there were 139 U.S. refineries, with a combined capacity of 17.9 million barrels a day, or 101,000 barrels a day more than the year before. The survey said there were three more idle refineries that could become active within 30 days.
EIA reported that U.S. refinery capacity increased by 0.6% last year over the 2012 level.
Trucking executive Lex Ludtke said he is bracing for the price of diesel to increase over the next six months.
“It’ll go up. I think fuel prices tend to tag along with the economy,” said Ludtke, the vice president of Ludtke Pacific Trucking in Bellingham, Washington. “It’s scary, but that’s our industry.”
Ludtke said he expects continuing economic growth, meaning his freight volumes will probably rise, but so will fuel.
The carrier has 36 company-owned trucks for moving nursery products, fresh produce, frozen foods and shipping containers. Ludtke said he pays the wholesale price at the nearest diesel rack, paying the oil company via direct deposit once every 72 hours.
In addition to his wholesale discount, Ludtke said he invests in aerodynamic attachments for his rolling stock, coaches drivers on fuel efficiency and monitors their performance, but it sometimes seems like a hopeless battle.
“We ain’t got no control,” he lamented.
Refrigerated carrier Wilson Lines of Newport, Minnesota, also has 36 company trucks and gets extra capacity from 12 owner-operators.
Vice President Gale Libby said business is strong, so his fuel surcharges are “sticking pretty good now.” The company provides longhaul truckload service and regional less-than-truckload.
Libby said he accepts diesel prices being high, but he does object when shippers give him warm freight and then tell him to cool the load in his trailers. Trailer reefer units are also powered by diesel, and they have to burn more of it to chill a load as compared with keeping an already-cold load at the same temperature.
