Diesel Price Dips for 14th Straight Week, but Gasoline Rises

By Rip Watson, Senior Reporter

This story appears in the Jan. 12 print edition of Transport Topics.

The U.S. retail diesel average declined 3.6 cents to $2.291 a gallon last week, the 14th consecutive drop, but analysts warned that fleets’ fuel costs are poised to start rising again.

Last week’s decline, reported by the U.S. Department of Energy, represents the lowest price in 2½ years and a 52% drop since the average hit a record $4.764 in July.

Meanwhile, the average gasoline price climbed 7.1 cents to $1.684, the first increase in four months, DOE reported after its Jan. 5 survey of fueling stations.

Even though the price of gasoline increased, the average for that fuel is at the lowest level since February 2004.

On a year-to-year basis, diesel has fallen 32%, or $1.085, from $3.376 in the corresponding week of 2007, while gasoline has dropped $1.425, or 46%.

“Whether it is gasoline or diesel — at the pump — there is some 10 to 20 cents a gallon more of retail ‘catching up’ [increases] that may take place in the next week or so,” said Tom Kloza, chief analyst for the Oil Price Information Service.

DOE data issued Jan. 7 showed that spot diesel fuel prices rose about 20 cents a gallon in the most recent week in Los Angeles, Chicago, Houston and New York.

“Diesel prices now are very close to, or at, the bottom,” DOE analyst Tancred Lidderdale told Transport Topics. “Crude oil prices that had gone under $40 a barrel now have recovered. As crude oil prices declined, gas fell a bit faster than diesel and reached the bottom ahead of diesel fuel.”

Despite these predictions, fleets are relishing their current good fortune at the pump.

“Obviously, the decline in fuel prices is one of the few bright spots in the industry today,” said Billy Woolsey, vice president of Anderson Trucking Service, St. Cloud, Minn. “I believe [lower prices] benefit the shipper to a greater degree as it dramatically reduces the cost per mile to get goods to market. Anything that helps the shipper is good for the service provider as well.”

Anderson ranks No. 34 on the Transport Topics 100 list of the largest for-hire carriers in the United States and Canada.

The diesel decline between the July peak of $4.764 and the price  last week translates into a drop in fuel-related operating costs of 41.2 cents a mile for a fleet that averages 6 miles per gallon.

At $4.764, fuel cost 79.4 cents a mile in July, and last week it was 38.2 cents a mile. That translates into $247 less in fuel costs for a single 600-mile haul.

“We were not recouping 100% of the fuel surcharge and the drop in prices has made us more profitable,” said Jeffrey Hamill, president of Prairie Line, a bulk commodities hauler based in Shakopee, Minn. Like other fleets, Prairie can’t recoup the cost of fuel used for blowers and other nontransportation uses.

Hamill, whose fleet includes 26 company tractors, said at its peak the company’s fuel surcharge topped 40%, and that it now has dropped into the 10%-to-15% range.

Hamill also highlighted the advantages that lower fuel prices bring to manufacturers and to consumers.

“Lower fuel prices help everybody throughout the supply chain and everyone in the general economy,” Hamill said. “Nobody gets a fuel surcharge from their employer, but the lower fuel prices and savings on gas mean you have more money to spend on other things.”

Woolsey said Anderson’s shippers benefit because the fuel surcharge is a pass-through to customers and isn’t viewed as a profit center.

Lower diesel prices also help cash flow for owner-operators and reduce the attractiveness of fuel theft, Woolsey added. Anderson, a diversified company that includes heavy haul and flatbed divisions, relies on owner-operators for about three-fourths of its tractor capacity.

Meanwhile, crude oil on the New York Mercantile Exchange edged closer to $50 a barrel early last week, settling at $41.70 on Jan. 8 after falling as low as $33.87 a barrel on Dec. 19.

Prices are rising because world events, such as fighting in the Middle East and a dispute between  Ukraine and Russia, are driving up crude oil prices, both Lidderdale and Kloza said.

Kloza cautioned, however, that “It’s too soon to say whether these sharp wholesale fuel and crude increases are sustainable — the economic woes haven’t disappeared, after all.”