Diesel Rises 2.6¢ to $3.854 as Iran Threats Push Oil Up

This story appears in the Jan. 23 print edition of Transport Topics.

Retail diesel prices increased for the second week in a row, rising 2.6 cents to $3.854 a gallon, the Department of Energy reported last week.

The increase followed an earlier 4.5-cent gain, which had reversed six weeks of declines that left the price at $3.783 to start 2012, DOE said after its Jan. 16 survey of fueling stations.

Last week’s price increase left diesel 44.7 cents higher than a year earlier, when it was $3.407, according to DOE.

Retail gasoline prices recorded a smaller increase last week, rising 0.9 cent to $3.391 a gallon. It was the fourth consecutive increase for gasoline, leaving it 28.7 cents above the previous year.

“A lot of the increase is Iran, Iran and more Iran,” said Phil Flynn, senior market analyst with PFGBest, Chicago. Iranian officials have threatened since late December to block the Strait of Hormuz, through which about a third of the world’s crude oil travels on its way to market.

“We had that big spike up in the price of oil, and a lot of it has to do with increased risk from Iran . . . which I think is keeping oil prices artificially high,” Flynn told Transport Topics.

Crude oil futures saw sharp increases on the New York Mercantile Exchange in the first two weeks of the year, reaching $103.22 a barrel, largely because of Iran, Bloomberg News reported.

Fuel price increases trail jumps in crude oil futures prices, Flynn said. Oil remained relatively steady last week, closing at $100.39 on Jan. 19, Bloomberg reported.

“At the retail level, there’s going to be a lag,” said Neil Gamson, an economist with DOE’s Energy Information Administration, which conducts the fuel surveys.

Gamson also credits the diesel increase to demand for heating oil as colder winter weather spread throughout more of the United States.

“The biggest increase was in New England, which is big on heating oil. And in California, it barely budged,” he said, citing EIA’s regional averages.

Even slight increases in the diesel price can hit small trucking companies hard, said Mark Morris, director of safety at Superior Service Transport, Salt Lake City.

“It’s very, very hard for small companies to deal with fuel prices,” Morris told TT. “And we do get a fuel surcharge like everybody else, but there’s lag time there,” he said, explaining that the carrier gets paid about 30 days after it buys the fuel.

By that time, the price might have increased drastically, he said.

“It may not look like big dollars, but when you add something like 50 cents a gallon, it becomes painful,” Morris said.

SST, which has 22 trucks, has seen changes in its diesel costs that largely reflect the national averages in the past two weeks, with small increases at some fueling stations and steady prices at others.

“It certainly hasn’t gone down,” he said.

Morris focuses on training the carrier’s drivers as it attempts to control fuel costs by decreasing consumption. SST has instituted a policy that bans idling in most cases, for example.

“We’ve been a little bit effective with that, but there’s only so much you can do,” he said. Morris estimated that an SST truck wastes about 6 cents to 7 cents every minute it idles.

Larger carriers such Midwest Motor Express Inc., Bismarck, N.D., with about 350 trucks, also feel the pain of diesel-price increases, despite fuel surcharges.

Marlin Kling, the carrier’s president, said “. . . we try to insulate ourselves as much as we can against” rising prices with the surcharges. But whenever the price increases, some customers try to push back and negotiate lower fuel surcharges, Kling said.

Midwest also sees delays in recouping the cash it has paid out in higher fuel costs, Kling added.

Fuel costs constitute 14% to 15% of Midwest’s expenses, he said. And when it fluctuates, it has a significant effect on the company’s profit margins.

“So we’re very cognizant of what is happening on a week in and week out basis with the cost of fuel,” Kling said.

Iran’s actions in the Strait of Hormuz could largely decide the price of oil in the short term, Flynn said.

“If things calm down with Iran, which is possible, I think we could see a big drop,” he said. But if tensions escalate, prices will likely go up, he added.