Diesel Price Rises 3.9¢ to $3.573 a Gallon
This story appears in the Feb. 28 print edition of Transport Topics.
U.S. retail diesel prices continued to climb last week, rising 3.9 cents a gallon to $3.573, the Department of Energy reported, as crude oil topped $100 a barrel for the first time since October 2008.
Diesel has risen 13% in 12 consecutive weekly jumps. A year ago, the average cost of a gallon was $2.832, DOE’s Energy Information Administration said after its Feb. 21 survey of fueling stations.
The average cost of gasoline also continued to rise, jumping 4.9 cents a gallon to $3.189. It has risen in 11 of the past 12 weeks, and is 53.4 cents higher than the comparable week in 2010.
“I’m deeply concerned. We’ve seen fuel go straight up, once the economy looks to be going on eight cylinders,” said Kevin Burch, president of truckload carrier Jet Express, Dayton, Ohio.
Burch said fuel surcharge programs are now more prevalent and stronger than they were during the 2007-2008 diesel run-up, but he worries about the psychological effect of $4-a-gallon fuel on the economy.
“That seems to trigger a signal of ‘Don’t buy cars, don’t travel or leave the house,’ ” Burch said.
After closing as $86.20 a barrel on Feb. 18 on the New York Mercantile Exchange, crude oil rose to nearly $101 on Feb. 24 on worries about political turmoil in Libya, before closing at $97.28 that day.
“We’re crossing $100 because, with the cut in Libyan output, the unrest in the Middle East is actually having an impact on oil supply,” Phil Flynn, vice president of research at PFGBest in Chicago, told Bloomberg News on Feb. 23. “There’s concern that unrest will spread further, threatening Saudi Arabia and other producers,” Flynn added, the wire service reported.
“Thank God for fuel surcharges,” said Bill Campeau, chief financial officer of D.M. Bowman Inc., a Williamsport, Md., truckload carrier with 316 power units. “We don’t want to pass on prices to customers, but it’s what we have to do. The fuel surcharge helps mitigate the impact on us,” he said.
Campeau said his company uses fuel-optimization software to get Bowman trucks to the best deal on diesel while on the road, and the company buys in bulk to get discounts for tractors that fuel up at company terminals.
Like Burch, Campeau said he worries about the drag that $4-a-gallon diesel and gasoline could place on the economy.
Oil-price concerns worries permeated the thoughts of others in trucking as well.
“The one thing we don’t want to see happen in our forecasts is geopolitical turmoil or an oil shock or both,” said Steve Tam, vice president of ACT Research Co., which looks at new truck orders. “There’s a psychological factor when you hear about a $10-a-barrel terrorism premium on oil.”
“The Middle East upheaval could cause substantial concern for my customers who buy and operate trucks,” said Walpole, Mass., truck dealer Dick Witcher, who was talking about truck sales while watching news about oil prices.
A contrarian view came from Mark Hazelwood, executive vice president of Pilot Travel Centers, Knoxville, Tenn., who told a transportation investors’ conference that the current high prices for refined prices are floating on a large volume of oil relative to the actual demand for it.
“Refineries are making a fortune today. It’s like $5-a-mile freight with no deadhead and all the freight you can haul,” Hazelwood told the BB&T Transportation Services Conference, adding that prices are “ripe for a squeeze.”
Gasoline inventories are at their highest level since 1990, Hazelwood said, because of oversupply of crude oil from Canadian tar sands.
“The amount of oil coming out of Canada is just staggering. There is a major glut of crude, gas and diesel. It all comes back to what is the oil demand in the world,” he said.
Hazelwood said he expects diesel fuel to range between $3.15 and $3.70 a gallon this year and into 2012. He also said he is skeptical of the staying power of $100 oil.
“The Saudis know $100-a-barrel crude oil isn’t good for the world economy. They are very, very smart as to where they want to keep oil prices. They want to keep it at $75 to $85 a barrel,” Hazelwood said.
U.S. refinery utilization slipped to 79.4% on Feb. 18 from 81.2% the week before, EIA said. The agency also reported that U.S. stockpiles of crude oil, ultra-low-sulfur distillate and gasoline remain well above their year-ago levels.
Senior Reporter Rip Watson contributed to this story from Coral Gables, Fla.
