Diesel Rises 4.9¢ to $3.899; Price Gain First in Four Weeks

The average price of U.S. retail diesel rose 4.9 cents a gallon last week to $3.899, the first increase in four weeks and the largest in three months, according to the Department of Energy.

Meanwhile, the average cost of a gallon of retail gasoline rose 6.2 cents to $3.641 a gallon in DOE’s July 11 survey of fueling stations.

Analysts cited robust crude oil trading and production shortfalls for the rising prices, and one hinted that pump prices would remain high.

“We’ve had a number of refinery outages and a rebound in the crude oil markets,” Stephen Schork, president of Villanova, Pa., oil trader Schork Group Inc., told Transport Topics on July 13. “We’re watching the dollar trading lower, and with $98 crude oil, you can’t help but have a spillover effect.”

Schork added that speculators were prompted to re-enter the market in the belief that demand will outstrip supply. In its latest short-term outlook, DOE’s Energy Information Administration projected oil demand would rise this year and the next.

Another oil and diesel consultant attributed the large price increases to gains in the cost of crude oil that began early in the month.

“Last week was a bull market run for crude oil,” Lewis Adam, president of Admo Energy LLC, told TT on July 12. “It was up every day, so we’ve been catching up on last week’s market.”

In all, diesel prices have decreased 22.5 cents since hitting a high for the year of $4.124 on May 2. Last week’s price jump gain was only the second in 10 weeks and the largest since a 10.2-cent increase on April 11.

Gasoline’s increase was the largest since May 2 and followed a 0.5-cent uptick the prior week.

But last week’s increases still left diesel 99.6 cents a gallon more expensive than a year ago, while gasoline is 92.3 cents higher.

“The trend that I see is that we will keep going higher,” Adam said.

Greg Swift, vice president of refrigerated hauler Swift Carriers Inc., Marshall, Mo., said an easy way any fleet can save on fuel expenses is by slowing down their trucks.

When fuel prices approached $5 a gallon several years ago, he said, the company lowered the top speed on all its trucks to 68 mph from 74 mph.

“I had hopes of saving a half-mile to a gallon. We didn’t quite get there, but we saved $300,000 a year,” Swift said.

Swift Carriers operates 25 trucks, hauling mostly food throughout the Midwest and Southeast.

G. Clifton Parker, president of G&P Trucking Co., Gaston, S.C., said his company is fortunate that the majority of its contracts with shippers provide for “fuel surcharges that will change to week-to-week or month-to-month” depending upon the terms of the pact.

Parker said his truckload carrier, which serves the Southeast, is still developing strategies to deal with fuel price swings.

“We’re trying to invest in technology to deal with fuel volatility as best we can. And we do some hedging,” he said.

Meanwhile, crude oil futures on the New York Mercantile Exchange closed at $95.69 a barrel on July 14. Oil has moved in a range of about $10 a barrel for more than four weeks, staying between $89.61 and $99.95 since June 13. Oil prices are more than 25% higher than a year earlier.

A Los Angeles Times report last week attributed the rising prices to five U.S. refineries not operating at full capacity, and a sixth being down for repairs.

However, Glen Sokolis, president of petroleum consultancy Sokolis Group, said the higher prices were just reflective of normal volatility.

“When crude goes up, gas, diesel and retail always lag two weeks behind,” he said.

Adam, of Admo Energy, cautioned that prices for motor fuels will remain high at least through the summer, a message underscored by EIA in its latest short-term outlook.

The agency said it expects diesel to average $3.86 per gallon for all of 2011 and $3.95 in 2012. The updated 2011 projection is a penny lower than June’s forecast, while the 2012 figure is unchanged.

It also said gasoline will average $3.56 in 2011 and $3.65 in 2012.

Although these figures are also down slightly from earlier projections, EIA said prices will remain significantly higher than a year ago, not only because of “the higher average cost of crude oil compared to previous years, but an increase in U.S. refining margins on gasoline.”

In a separate report, DOE said domestic crude oil inventories dropped 3.12 million barrels to 355.5 million for the week ended July 8.

The report also stated that gasoline inventories fell 800,000 barrels, while stockpiles of distillates, including heating oil and diesel, rose 3 million barrels.