Diesel Rises 3.7¢ to Record $4.764; Crude Drops

By Dan Leone, Staff Reporter

This story appears in the July 21 Print Edition of Transport Topics.

The U.S. retail diesel average rose 3.7 cents last week to another record, $4.764 a gallon, the Department of Energy reported, while the price of crude oil posted its largest single-day drop in 17 years on July 15.

For diesel, the increase followed an 8.2-cent gain the prior week, which already had erased the 7.8-cent decline recorded during June, DOE said after its July 14 survey of fueling stations.

The historic drop in crude oil prices on July 15 — a decline of $6.44 a barrel — took place after Federal Reserve Chairman Ben Bernanke told Congress that high oil prices are contributing to rising inflation, which could exacerbate economic sluggishness and depress oil demand.

On July 17, oil on the New York Mercantile Exchange closed at $129.29 a barrel, a drop of more than $15 from the start of the week.

An analyst said that, with record fuel prices weakening demand, pump prices could quickly slide if crude continues to fall.

Related to diesel prices, “we know we’re seeing demand disruption, but we haven’t seen the price drop yet,” said Phil Flynn, an analyst with Alaron Trading Corp. “If we can continue to see crude go down, we should see diesel prices go down, as well.” He added the market “could very easily take $30 off of crude, or even more.”

Tom Kloza, chief analyst for the Oil Price Information Service, said more distillate has been produced by refiners in recent weeks, which could further force down diesel prices.

Despite crude’s decline, its average price remained about 80% higher than a year ago, while the latest increase left diesel fuel $1.875 a gallon more expensive than in the corresponding week of 2007.

That price means the trucking industry last week paid $1.4 billion more for the 752 million gallons of diesel it uses each week than it did a year ago.

Trucking is now on pace to spend about $168.9 billion on diesel in 2008, double the amount the industry spent just four years ago, according to estimates from American Trucking Associations.

Meanwhile, DOE said the gasoline average dropped 0.1 cent to $4.113 a gallon last week.

The gasoline average was almost 40% higher than its Feb. 11 low of $2.96 a gallon and $1.064 a gallon higher than a year ago, adding about $303 million to the industry’s weekly fuel bill, based on an estimated burn rate of about 285 million gallons.

The president of a Gaston, S.C., truckload carrier said that, with such rapid fuel price increases this year, one of his company’s greatest challenges is recovering its diesel costs through a surcharge.

“I recoup about 73% [of diesel costs] on a surcharge . . . that’s a long way from 100%,” said Clifton Parker, president of G&P Trucking and a former chairman of the Truckload Carriers Association.

To illustrate his point, Parker related his own recent observations of diesel price increases at a truck stop near G&P’s headquarters.

“On my way to work, diesel was $4.49 [a gallon]. At lunchtime, it was $4.59, and when I went home at a quarter to six, it was $4.63,” Parker said. “You tell me how you manage that.”

To save on fuel, G&P has installed auxiliary power units on about half of its fleet and set a fleetwide speed limit of 65 miles per hour, which has generated about “$1.3 million in savings on an annualized basis.”

G&P Trucking is an affiliate of less-than-truckload carrier Southeastern Freight Lines, Lexington, S.C. The companies share common ownership but operate separately.

Also last week, truckload carrier J.B. Hunt Transport Services said in its second-quarter earnings report that profits at its truckload division plummeted as high fuel costs and “unrealistic fuel economy assumptions in most customer-specific fuel surcharge programs” sapped $3.2 million from the unit’s operating income.

Other carriers are aggressively moving to reduce fuel consumption because of record prices, according to a recent survey conducted by Transportation Capital Partners, a Nashville, Tenn., financial services and consulting firm.

The most popular methods focused on driver behavior, the survey showed. Most notably, more than 75% of the trucking companies surveyed had set fleetwide speed limits of 65 mph or lower, TCP said.

In addition, more than 50% of these fleets have introduced incentive programs to encourage drivers to coax more miles out of every gallon of fuel, TCP said.