Diesel Prices on the Rise After Six Weeks of Decline

Retail diesel prices ended six weeks of declines by rising last week for the first time since late November, the Department of Energy reported, as fleet managers said they were bracing for the possible return of $4-a-gallon fuel.

The average retail diesel price rose 4.5 cents to $3.828 a gallon, DOE said after its Jan. 9 survey of fueling stations. Last year at this time, the average was $3.333.

The gain followed a spike in wholesale prices the previous week (1-9, p. 1). After jumping more than 15 cents a gallon from Jan. 2 to Jan. 4, to $3.20, U.S. diesel rack prices remained at the same level on Jan. 11, Bloomberg News reported.

DOE’s Energy Information Administration also said the average price of regular gasoline rose for the third straight week, this time by 8.3 cents a gallon to $3.382.

The three-week increase has added 15.3 cents a gallon to gas prices. A year ago, the gas average was $3.089.

Two major influences on prices for crude oil and refined products are pushing against each other, said analyst Andrew Reed, a principal with ESAI Energy, Wakefield, Mass.

“There’s weaker demand for diesel, globally, and inventories have gained back some of what they lost in the fall, but the political instability in Iran trumps the supply-and-demand fundamentals,” said Reed.

EIA reported that U.S. stocks of ultra-low-sulfur distillate jumped to 102.7 million barrels of oil on Jan. 6, up from 96.8 million on Dec. 30. It was the highest inventory level for diesel and related commodities since Sept. 30.

Crude oil futures on the New York Mercantile Exchange dipped slightly below $100 a barrel, closing at $99.10 on Jan. 12. In early October oil hit a low point of $75.67 a barrel.

Price increases at the pump are already hitting the nation’s fleets.

“My bulk rate on fuel has gone up 29 cents a gallon in the last two weeks,” said Don McGinn, an owner of McGinn Brothers Trucking, Haines, Ore. His company buys 15,000 gallons of 5% biodiesel a week to fuel 42 trucks that haul live cattle and feed for animals.

“Until it calms down in Iran and the Middle East, I expect prices will creep up,” McGinn said.

From Nov. 21 to Jan. 2, when the diesel average slid from $4.01 to $3.783, McGinn and other truckers benefited, as fuel surcharges worked well. If there is a steady increase, though, there will be a cash-flow problem, he suggested.

“We do a 30-day weighted average for fuel, and we won’t be able to adjust again until about Feb. 1,” he said.

Truckload carrier Stallion Transportation Group, Beebe, Ark., expects fuel costs of $4 to $4.05 a gallon in coming months, said Chief Financial Officer Jeff Holt.

“We used to use owner-operators 100%, and now we’re about 95% company drivers. We weren’t concerned with engine idling, but now we are,” Holt said.

Stallion is now a SmartWay partner under the Environmental Protection Agency program, and the carrier has adopted fuel-saving techniques and technology for tires, wheels and trailers.

Holt said that Stallion also has purchased software to monitor drivers’ fuel performance and optimize travel plans.

ESAI’s Reed said part of the reason for the diesel inventory increase is a calming in exports from U.S. refineries to Europe and Latin America. October and November are the peak season for diesel exports, he said.

Bloomberg News said Germany, which is Europe’s largest economy, contracted at the end of the year.

“The fundamentals are poor, with both [the] inventory report and the fourth-quarter contraction of the German economy pointing to lower prices,” John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, told Bloomberg.

Also on Jan. 11, EIA updated its short-term forecast for petroleum prices.

Diesel will average $3.85 a gallon this year and rise to $3.93 next year, the agency said.

The 2012 forecast matches December’s outlook, and the projection for next year was DOE’s first for 2013.

EIA also said oil will average about $100 per barrel this year, up about $5 a barrel from 2011. Benchmark U.S. crude will rise to $106 a barrel by the end of next year, assuming U.S. gross domestic growth of 1.8% this year and 2.5% in 2013, EIA said.