Diesel Slips Back Below $4 a Gallon

U.S. retail diesel prices slipped back below $4 a gallon last week, but the 4.6-cent decline in the national average price provided little comfort to truckers who are still paying 80 cents more a gallon than they were at this time last year.

The average price fell to $3.964 from $4.010 the previous week, the Department of Energy reported in its Nov. 28 survey of filling stations. Last year at this time, the average price for a gallon was $3.162.

Gasoline continued its steeper price decline, dropping 6.1 cents last week to $3.307 from $3.368, DOE reported. As a result, while truckers buying diesel paid an 80-cent premium over last year’s price, gasoline buyers paid only 45 cents more than last year.

“Fuel costs are crushing us,” said Kevin McNeil, owner of Fleet Transit Inc., an 80-unit bulk liquid carrier in Baltimore.

“You got your fuel surcharge, and that helps . . . [but] some shippers don’t want to pay,” McNeil said.

If shippers will not accept a fair surcharge, McNeil will not haul their loads, he said. “You can’t afford to. They’ll run you right out of business if you let them.”

Diesel prices have stayed high, relative to gasoline prices, because world demand for diesel is growing faster than for gasoline, putting intense pressure on distillate inventories in the United States, oil analysts told Transport Topics.

“It’s in the emerging economies, which have a strong demand for distillate, not only for trucking to support their growing economies but also for electricity generation,” said Tancred Lidderdale, senior economist at the DOE Energy Information Administration.

“Total gasoline stocks right now are around the same level as they were last year, whereas distillate stocks are significantly lower,” Lidderdale said.

EIA records show U.S. distillate inventories, the base from which diesel is made, fell for six consecutive weeks until hitting 132.9 million barrels on Nov. 18, the lowest level since December 2008.

“There’s a very tight supply of diesel in Europe, as well as in China, and that has been driving markets,” said Phil Flynn, senior energy analyst with PFGBest in Chicago.

“We’re exporting more diesel than we ever have before, so, we’re a net exporter . . . and this is keeping our prices . . . elevated,” Flynn added.

According to EIA, in 2009, the U.S. exported 85.7 million barrels of ultra-low-sulfur diesel, the U.S. trucking industry’s main fuel. That volume jumped to 114.7 million barrels in 2010.

Tank carrier executives such as McNeil said they have few options available for cutting fuel consumption and costs, beyond fuel surcharges and hiring the best drivers.

Other types of carriers, for example, have saved on engine fuel by installing auxiliary power units to heat and cool truck cabs. But APUs are useless to tanker trucks that rarely stop, said Carl Brune, vice president and operations manager for McKinley Trucking Co., a Carson City, Mich., tanker fleet that hauls gasoline and chemicals.

“Our over-the-road teams are hauling a poison, and they have to be moving 24 hours a day,” Brune said. “They can’t stop.”

Likewise, the firm does not have bonus programs for drivers who hold down fuel consumption be-cause so many gasoline tankers are “slip-seat” operations where one person drives the truck during the day and another at night, Brune said.

That schedule makes it difficult to determine from the truck’s electronic logging device which driver is responsible for which portion of the mileage, he said.

Fuel-saving devices such as aerodynamic equipment rarely are applicable to tankers, as well.

“Most of your aerodynamics come in with the trailers, with skirting and that type of thing, but with a tanker, you can’t do that,” Brune said.

The firm does see its truck purchase system as a way to hold down fuel consumption, he said.

“We’ve been buying newer tractors that get better mileage,” he said. “We get a little better mileage with the new ones, but it’s not substantial.”

The oil analysts do not agree on whether diesel prices will retreat significantly from their high level.

Lidderdale said he expected prices to begin retreating as U.S. inventories stop falling and Libyan oil producers swing back into operation now that the war there is over.

The North African nation supplied much of the oil imported by European countries, which for most of this year were forced to find diesel in other markets, he said.

Flynn said he is less optimistic that diesel or gasoline prices will drop. Unrest in the Middle East, particularly the recent turmoil in Iran, where protestors stormed the British embassy, has raised what he called the “risk premium” on the price of crude oil.

“If the tensions in the Middle East continue to run high, I think it’s going to be difficult to see those prices come down,” Flynn said.

Crude oil futures have been rising, reaching $100.20 a barrel at closing on Dec. 1, on the New York Mercantile Exchange. On Nov. 1, oil closed at $92.19.