Diesel Slips 10¢ to $2.515

By Rip Watson, Senior Reporter

This story appears in the Dec. 15 print edition of Transport Topics.

The average retail price of U.S. diesel fuel dropped for the 10th consecutive week, the Department of Energy reported, but the gap between diesel and gasoline price reached the widest spread since the agency began publishing diesel prices in 1994.

Diesel’s decline of 10 cents left the average at $2.515, DOE said after its Dec. 8 survey of fueling stations, 81 cents a gallon below the comparable week of last year and almost 50% less than the peak in mid-July. At the same time, the gasoline average continued to decline even faster, dropping 11.2 cents to $1.699, nearly 60% below peak summer prices and $1.301 below a year ago.

Although the average price of both fuels continued falling, the gap between diesel and gasoline hit a record 82 cents a gallon.

The keys to the widening gap are the supply and demand trends in today’s markets and the longer-term worldwide trend toward more use of diesel, experts said.

“In this market, the demand deterioration for gasoline has to do with American public’s ability to spend money, with layoffs and the economy spiraling downward,” said James Burr, vice president of F.C. Stone, a fuel-hedging advisory firm. “Demand for diesel hasn’t declined that much relative to gasoline.”

Those demand trends give refiners an incentive to produce more diesel, said Burr and Ben Brownlee, an analyst for the Oil Price Information Service.

Refiners now lose money on each gallon of gasoline they produce, but are forced to keep making that product in order to refine more diesel, which turns healthy profits, Burr and Brownlee said in separate interviews.

A barrel of oil can yield about seven gallons of diesel and 20 gallons of gasoline, but only about two of those 27 gallons can be switched back and forth by refiners who want to produce more profitable diesel.

Still, the changes in fuel prices, driven by a continuing drop in demand as the U.S. recession intensifies, were welcome news for fleets that face increasing competition and price pressure as manufacturing has fallen to the lowest level in 26 years and wary consumers have cut spending.

Fleets “are so glad that diesel has fallen that there is dancing the streets — that is the impression I get,” said David Creer, executive director of the Utah Trucking Association.

Count Dan England in that category.

“We have been helped dramatically by lower fuel prices,” said England, chairman of C.R. England Trucking, No. 36 on the Transport Topics 100 list of the largest for-hire carriers in the United States and Canada. “Lower fuel prices have helped to restore much of the margin we lost over the last couple of years.”

“There isn’t as much pressure to pass those costs along to our customers, and there is less pressure for them to pass along those costs in the price of goods they sell,” he added.

England identified a positive by-product of higher fuel prices, however. They forced fleets to increase efficiency and reduce consumption by steps such as reducing speeds. Even with the recent precipitous drop in diesel, England said his company has no plans to reverse steps that helped both efficiency and the environment.

“Truckers are happy that prices continue to get lower, and we hope that the [diesel/gas] gap gets closer and closer,” said Dan Case, executive director of the Oklahoma Trucking Association. “Will diesel prices stay where they are? Probably not. We are being lulled into this false sense of security right now. When demand goes back up, the price of diesel will go up again.”

England said it was a concern that diesel prices aren’t falling as fast as gasoline prices.

“It doesn’t seem quite fair,” he said.

Case said he believes the wider adoption of alternate fuels such as liquefied natural gas would help to put a damper on future diesel prices, and said Oklahoma’s first LNG station will be in service early next year. 

“We need to look at alternative fuels now because there is enough LNG in the good old U.S.A. to meet the needs for the next 60 years.”