Diesel Price Declines Again

This story appears in the Sept. 21 print edition of Transport Topics.

The U.S. retail diesel average price fell 1.3 cents to $2.634 a gallon in its second consecutive post-Labor Day dip, the Department of Energy said last week.

With the summer driving season over, the national gasoline average declined for a fifth consecutive week, falling 1.1 cents to $2.577 a gallon, DOE reported.

An analyst said that the diesel average, which rose slowly but steadily throughout the summer, has slipped in the past two weeks because summer gasoline demand has relented and winter heating oil demand has not yet ramped up.

“Heating-oil season really starts in October. September is really a ‘shoulder month,’ ” said Roger McKnight, senior petroleum analyst for En-Pro International Inc., an energy pricing and services firm in Oshawa, Ontario. “When demand for gas is down and there’s no demand for heating oil — the key driver of distillate prices — you see diesel prices come down.”

A mild Atlantic hurricane season so far also has helped moderate prices, McKnight said.

En-Pro International provides, among other services, fuel procurement consulting for U.S. trucking companies.

In spite of declines over the past two weeks, diesel has risen about 36 cents a gallon since Memorial Day, DOE data show.

That increase is partly because “all summer, the [petroleum] market has paid no attention to the fundamentals,” said Brad Simons, president of Simons Petroleum’s Pathway Network, which provides fuel purchasing services for trucking companies. “It’s all been tied to equity [markets] and the weak U.S. dollar.”

But compared with a year ago, diesel has fallen about 35%. Trucking’s main fuel has fallen about 45% from its all-time high of $4.764 a gallon on July 3, 2008.

Meanwhile, the gasoline average was down about 33% year-over-year, and has fallen 37% from its all-time record of $4.114 on July 7, 2008.

The trucking industry consumes about 752 million gallons of diesel a year, American Trucking Associations estimates.

DOE’s weekly energy reports last week also showed that supplies of distillate fuels, the category that includes diesel, rose to their highest level in 26 years.

Distillate stocks in the week ended Sept. 11 rose 2.24 million barrels to 167.8 million, DOE data show. Demand, on the other hand, slid to 3.36 million barrels a day from 3.73 million barrels a year ago.

Two trucking executives said that the recession-driven supply glut has made fuel vendors easier to deal with. However, they said continuing economic weakness means that operating costs such as fuel continue to monopolize cash expenditures.

“The customer service from fuel vendors has never been better than in the last year,” said Steve Teeple, president of Pollywog Transportation, Palmetto, Fla. The 30-truck company runs refrigerated freight east of the Mississippi.

Teeple said that Pollywog this year has channeled its $2 million in annual fuel expenditures to a single vendor. The vendor “tends to reciprocate,” Teeple said. “Services we get from that vendor include no fuel card fees, for example.”

Fuel vendors are receptive to such deals, Teeple said, because trucking companies are buying fewer gallons of diesel because of the recession.

However, the recession also means that “we’re holding onto our cash and using it for operational costs,” such as paying the fuel bill, Teeple said.

A larger carrier identified the same trends.

Fuel vendors “have become more like salesmen than they were a few years ago, when they knew they had someone to go to, no matter what,” said Clifton Parker, president and general manager of G&P Trucking, a truckload carrier running 506 tractors out of Columbia, S.C.

However, tight competition for scarce freight means that shippers are asking for, and receiving, more time to remit payment for freight hauling services, forcing G&P to reserve cash for running its business and keeping its tanks full of diesel.

G&P’s accounts-receivable balance has contracted year-over-year, but the company is forced to carry the smaller balance forward for a longer period of time.

“We were carrying $750,000 last year in receivables balance, and this year, that number is closer to $375,000,” Parker said. “What really doesn’t get factored into that number is carrying those dollars for an additional 40 or 45 days, and the cost of financing,” he said, however.

More moderate fuel prices not-withstanding, Parker said G&P has maintained ties it established last year with Simons Petroleum, the Oklahoma City fuel procurement and risk management firm.

“I was not accustomed to that kind of spike” in fuel prices and “needed a petroleum supplier to educate us on fuel hedging and other strategies,” Parker said.

G&P also has installed auxiliary power units in 70% of its sleeper cabs. Parker plans to keep the units, which were installed two years ago. He estimated the APUs already have paid for themselves.

Meanwhile, crude oil prices on the New York Mercantile Exchange on Sept. 16 closed at $72.51 a barrel, the highest close since the end of August, as traders digested news of a drawdown in U.S. stockpiles.

Crude inventories fell 4.73 million barrels to 332.8 million last week, DOE said — the lowest level since mid-January.