Diesel Price Jumps 13.1¢

This story appears in the April 6 print edition of Transport Topics.

U.S. retail diesel prices jumped sharply last week, a second straight bump that raised the national average a two-week total of 20.4 cents a gallon, or about 10%, as gasoline also rose, topping the $2 a gallon mark for the first time since November, according to the Department of Energy.

While the diesel average rose 13.1 cents a gallon to $2.221 last week, analysts said they do not believe this is the beginning of a prolonged period of price spikes, in part because crude oil, which had risen nearly 60% from mid-February through late March, fell back below $50 a barrel.

The March 30 increase was the steepest one-week jump since May 26, but the latest price is still $1.743 below prices a year ago, although it was 20.4 cents more than the low point of $2.017 on March 16 — the cheapest price in more than four years.

“Demand for diesel is particularly poor. I think [the last two weeks] was only a temporary recovery,” Tom Kloza, chief oil analyst for the Oil Price Information Service, told Transport Topics.

Kloza said recent price increases for diesel are the result of a jittery market moving quickly.“We had a cold March and some refinery outages,” in addition to rising crude oil prices, Kloza said. “Diesel is a macroeconomic product and the economy is still horrible. What we’re seeing now in prices is evocative of 2004 — meaning that five years of growth is gone.”

The gasoline average rose to $2.046 on March 30, DOE reported, an increase of 8.4 cents a gallon from the prior week. The last time the average was more than $2 a gallon was $2.072 on Nov. 17.

Gasoline hit a five-year low of $1.613 on Dec. 29. For the next three months, though, the gasoline average increased by 43.3 cents a gallon, or 26.8%. It increased in 10 of 13 weeks, with March 30 the third one straight. Still, it is $1.244 below the same time last year.

DOE’s Energy Information Administration said April 1 that gasoline was unlikely to cross $3 a gallon this summer, as it did last year.

“Although future market conditions are highly uncertain, EIA does not see gasoline prices climbing to such levels this year. It does seem likely, however, that gasoline prices will average more than $2 per gallon this summer,” the agency said.

The generally low price of motor fuels has allowed fleet executives to focus on other problems inflicted upon trucking.

“It’s definitely climbing again, so we adjust our fuel surcharges as quickly as we can,” Jim Subler, president of Classic Carriers, said of diesel prices. He said surcharges work well on 70% of loads, especially headhauls for core customers.

“But with backhauls and brokered loads, many fuel surcharges have been eliminated,” Subler said, because spot market rates have been steadily declining. Classic, based in Versailles, Ohio, is a refrigerated hauler with 170 power units.

Compared with the first half of last year, when prices were surging toward the midyear record and dominating attention from management, fuel worries “have fallen down the scale a little bit,” Subler said, adding that more pressing concerns are the poor economy, mushy freight rates, the new generation of diesel engines for 2010 and retaining a top-quality driving staff.

After setting a record of $4.764 a gallon in mid-July, the diesel average fell for 33 of 35 weeks until March 16. Then rising crude oil prices began influencing events.

Crude rose from $33.98 a barrel on Feb. 12 to $54.34 on March 26, an increase of 59.9% in six weeks. The following week, though, it was largely below $50 a barrel, closing at $48.39 on April 1.

Bloomberg News quoted analysts arguing that petroleum supplies are strong while demand for the stuff is weak, hence the retreat in prices.

“The tanks are brimming. The numbers [on April 1] show there’s plenty of supply,” energy economist Adam Sieminski told the wire service.

“We will need to see demand come back before there is any sustained rally in this market. At this point, demand is still falling,” Kyle Cooper of IAF Advisors told Bloomberg.

But Classic Carrier’s Subler said he considers fuel price increases inevitable, so his managers work on burning it with thrift. His assumption of pricing for the next couple of quarters is roughly $2 to $2.50 a gallon.

“That’s my guess. The demand from the economy won’t be there to drive it above that.

“Shippers say they expect to ramp up activity, but they’re very cautious. When it will actually happen is a guess in anybody’s crystal ball,” said Subler.