Diesel Prices Expected to Climb Following OPEC Cuts in January

This story appears in the Dec. 5 print edition of Transport Topics.

The U.S. average retail price of diesel fell 0.1 cent to $2.420 a gallon, according to the Department of Energy, but fuel prices are likely to rise soon, one analyst said.

The increase could be the result of a Nov. 30 agreement among OPEC members to reduce oil production beginning in January.

Crude oil futures on the New York Mercantile Exchange closed Nov. 29 at $45.23 per barrel but climbed to more than $49 by mid-morning the next day on news of the deal.

The national average diesel price, however, is 0.1 cent less than it was a year ago, when the price was $2.421, DOE said after its Nov. 28 survey of fueling stations.

Changes in the average regional diesel prices were mixed: higher in three regions, unchanged in two and lower in five.

Meanwhile, the U.S. regular gasoline average price fell 0.1 cent to $2.154 a gallon, 9.5 cents higher than a year ago, DOE’s Energy Information Administration said.

OPEC clinched a deal to curtail oil supply, confounding skeptics as the need to clear a record global crude glut, and prove the group’s credibility, brought its first cuts in eight years, Bloomberg News reported.

OPEC will reduce output to 32.5 million barrels a day, Bloomberg said.

“It’s going to push up prices in a knee-jerk fashion [right away]. You’ll get oil at over $50 a barrel in the U.S. So I think diesel could get up to $2.50 a gallon rather quickly, say between now and the end of December,” Denton Cinquegrana, chief oil analyst at Oil Price Information Ser- vice, told Transport Topics on Nov. 30.

The last time diesel prices were at $2.50 a gallon was Nov. 9, 2015, when they hit $2.502, according to EIA.

The OPEC-arranged cap is set to last for six months initially and could be extended, Cinquegrana said.

OPEC will earn $341 billion from oil exports this year, according to EIA. That’s down from $753 billion in 2014 before prices crashed, Bloomberg said.

“There are a lot of moving pieces. Let’s see if they can actually do it, bring in production. We all know OPEC throughout the years has cheated on its quotas, especially when oil prices rise,” he said.

U.S. oil production, which is not affected by the agreement, could increase with higher prices, he said. Refineries could increase production, as well. “At the end of the day, supply and demand are going to matter.”

EIA suggested in its Short-Term Energy Outlook for November (released before the OPEC agreement) that crude oil would average $51 a barrel next year.

It anticipated on-highway retail diesel prices would average $2.69 a gallon in 2017, and it pegged the average pump price for regular gasoline at $2.29 next year.

At one large trucking company, switching out one component made an overnight improvement in fuel economy.

Fifteen years ago, Bison Transport Inc. converted its entire less-than-truckload and truckload fleet to automated transmissions from manual transmissions, President Rob Penner said.

“The reason we did that back then was fuel. The automated transmission didn’t actually perform better than the best driver, but it raised the floor by a mile-and-a-half per gallon. So we didn’t have anybody doing 5 miles per gallon anymore, and we have been a fully automated fleet from that far back.”

The improved fuel mileage from the conversion “was the equivalent of nearly 15 cents per mile in savings,” said Penner, whose Winnipeg, Manitoba-based carrier operates about 1,600 tractors and has an annual diesel budget of about C$50 million.

“It was pretty straightforward for us,” he said. “There are very few things we can do to change out cost to that magnitude.”

He now uses all the automated transmissions that are available from Detroit Diesel Corp., Volvo Trucks North America and Eaton Corp. “The latest and greatest,” he said.

Bison buys about 30% to 40% of its fuel in the United States, he said. “The percentage moves depending on price and the exchange rate. We have to take everything into consideration, including fuel tax.”

Bison Transport also is testing a 2017 Freightliner Cascadia, the most fuel-efficient model from manufacturer Daimler Trucks North America.

“Early signs of that — and it is completely their powertrain with us having no input on it — are it’s all as advertised as far as their expectations of improvement,” Penner said. “We are seeing 9 mpg with that truck in a regu-lar 5-axle application — and loving it.”

Bison Transport ranks No. 65 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.