Diesel Price Falls by 2.1¢ to $4.127, While Gasoline Drops 1.7¢ to $3.922

Retail diesel prices fell 2.1 cents a gallon to $4.127 last week, the U.S. Department of Energy reported, continuing a recent pattern of modest cost fluctuation after sharp increases earlier in the year.

DOE’s April 16 price was 0.4 cent above the March 12 price. In the intervening six weeks, the biggest price swing has been 2.9 cents a gallon, following a 31-cent increase between January and early March.

Last week’s price was just 2.2 cents above the comparable $4.105 a year earlier. So far this year, diesel prices have been more stable than in 2011, when prices leaped 77.4 cents a gallon between the start of the year and mid-April.

DOE also reported that the retail gasoline average also fell last week, dropping 1.7 cents to $3.922 per gallon.

Gasoline prices have climbed 9.3 cents since mid-March and 62.3 cents so far this year. Gas is 7.8 cents above the 2011 week price of $3.844.

Despite the relative calm this spring, diesel remains near its highest level since the summer of 2008, and experts believe price swings will continue.

“Prices are very high now,” Tom Kretsinger Jr., president of American Central Transport, based in Liberty, Mo., told Transport Topics. “Several things could make it go up further — weird things in the Middle East and an improving economy on the demand side could put pressure on prices.

“I would expect diesel will be flat or up, unless the economy was to contract into a bad recession, which is looking less likely every day,” he said.

Mark Hazelwood, executive vice president of travel center operator Pilot Flying J, also stressed uncertainty.

Crude oil prices could slump about 20% or rise by a similar amount, depending on world events, such as potential disruptions linked to Iranian supply and political factors, Hazelwood said, adding that speculation also is an important factor.

“We went through a period where there was $12 to $15 a barrel built [into crude prices] due to rumors about Iran,” he said. “Rumor is often worse than the facts.”

Thomas O’Brien, CEO of TravelCenters of America, agreed.

“Huge swings can be caused not only by actual events but also speculation about those events,” he said during a recent conference call. “Our approach — and that of anyone who relies on fuel or petrochemicals as an input in their business — is to do things in a way that minimizes their exposure to things they really can’t control.”

At TA, O’Brien said, that means resetting diesel prices daily and keeping inventory to as little as one or two days.

ACT’s Kretsinger also emphasized the importance of effective fuel price management, but from a different perspective.

“Your ability to be successful and be profitable depends on how you manage fuel,” Kretsinger said. “That goes from how you purchase it, how you ‘spec’ your trucks, how good your drivers are . . . and your approach to fuel surcharges.”

Fleets must find ways to cover fuel price changes in base rates if shippers’ fuel surcharge policies lack provisions for effective adjustments.

“When fuel rises rapidly, we have to pay for it now, and it might have to wait 30 to 35 days to get paid,” Kretsinger said.

Other fleets also are paying close attention to surcharges.

“In periods of rising prices, we are negatively impacted due to the structural lag in billing fuel surcharges,” Swift Transportation Co. said in its April 19 first-quarter earnings report. “We bill based on the Department of Energy average for the prior week, but we pay based on current day prices.”

Demand rather than supply is driving today’s diesel markets, Hazelwood said.

“Diesel is a prize around the world,” he said, citing particularly strong demand in Europe, where more vehicles use diesel than gasoline. “Diesel is leaving the country because [those in] other countries are willing to pay more for it.”

Supply is not an issue, Hazelwood noted, since crude inventories are building in Cushing, Okla., a key location for oil storage facilities.

At the same time, refineries are running at about 84% of capacity, far below the 97% level when the economy was surging in 2004 and 2005.

Prices for the benchmark West Texas Intermediate crude slumped last week, to $102.27 on April 19.

After last week’s DOE an-nouncement that crude oil inventories rose 3.9 million barrels in the week ended April 13, prices for the benchmark crude dipped 1.5% to $102.67 per barrel. Crude inventories are at their highest level in 11 months.