Diesel Slips Below $4 Per Gallon as U.S. Crude Inventories Soar
This story appears in the April 8 print edition of Transport Topics.
The average price of a gallon of U.S. retail diesel slipped below $4 last week for the first time in two months, the Department of Energy reported, as the nation’s crude oil supplies soared to levels not seen in decades.
Diesel dipped 1.3 cents last week to an average of $3.993, DOE said after its April 1 survey of fueling stations. A year ago, the average was $4.142 a gallon.
Also, gasoline prices declined last week to $3.645 from $3.680 a gallon. A year ago, the average price was $3.941, the DOE said.
Last week’s drops marked the fifth consecutive decline in diesel and gasoline prices. During that time, the price of diesel has retreated almost 17 cents a gallon and gasoline, 14 cents.
“They’re falling, and pretty dramatically,” said Phil Flynn, an analyst at Price Futures Group in Chicago, of fuel prices. “We’re definitely seeing some benefit from the fact that oil supplies hit the highest level for the end of March in 82 years, so for this time of year we’ve never really had this much oil since the 1930s,” Flynn said.
Overall, the United States had on hand as of March 29 388.6 million barrels of crude oil, compared with 385.9 million a week earlier and 362.4 at the same time last year.
Crude oil inventories “are well above the upper limit of the average range for this time of year,” DOE said.
“What we’re seeing because of the surge in shale gas production, it’s really put some downward pressure on the market,” Flynn said. “When you’re doing the fracking [for natural gas], we’re also seeing an increase in oil production as well.”
When news of the abundant oil supplies reached oil traders last week, crude prices tumbled almost $3 a barrel. The closing price on April 3, the day the DOE report was released, was $94.45 after closing above $97 in trading for the three previous days, according to Bloomberg News.
A day later, oil futures on the New York Mercantile Exchange closed even lower at $93.26. A year ago at the same time, crude closed at $106.58 a barrel.
Because diesel prices are on their way down does not mean, however, that carriers back off their efforts to keep a lid on fuel costs.
At TP Trucking, a truckload carrier in Central Point, Ore., the maintenance manager, Scott Kimmons, said he’s currently working on a fuel-incentive program to reward drivers who adopt driving practices that save fuel.
“We are in the process of developing enough information to come up with a reasonable and fair program,” Kimmons said.
He also said that TP has already done the best thing any fleet can do to save fuel — buy new trucks.
“We’ve actually just bought 28 new trucks,” he said. They are Kenworth 2012 and 2013 models with Cummins ISX engines. “We are averaging about 1.3 miles to the gallon improvement,” he said of the fuel mileage.
Today, with the new trucks, TP is running in the high 6s or the low 7s in miles per gallon, Kimmons said. “We used to be in the mid- to high 5s.”
TP has 48 of its own trucks and about 70 owner-operators and hauls largely wood products on flatbeds or curtain vans and also hauls dry goods, he said.
“The fuel [savings] does not pay for the total cost of the new trucks, but it makes a big dent in it,” Kimmons said. “We have a couple trucks that run up into Canada . . . and they’re at 105,000 pounds, and we put one of these new trucks on that haul and it wound up being a little over $2,000 a month that we saved on fuel.”
Another factor behind TP’s decision to purchase new trucks was the emissions rules in California, where TP does about 75% of its business, Kimmons said.
The emissions rules for trucks are so strict that some carriers are just not making runs into California, which has given TP new opportunities to increase its business, another reason why the carrier plans to go on buying more new trucks this year, Kimmons said.
