Diesel Slips for Second Week; Gasoline Average Tops $4 a Gallon

By Rip Watson, Senior Reporter

This story appears in the June 16 print edition of Transport Topics.

The U.S. diesel average inched downward for the second consecutive week, dipping 1.5 cents to $4.692 a gallon, while gasoline topped the $4 mark for the first time ever, the Department of Energy reported.

The diesel drop, which followed a decline of 1.6 cents the previous week, provided little relief for fleets already stung by increases of 17% in two months, 40% this year and 68% the past 12 months.

Meanwhile, the gasoline average rose 6.3 cents a gallon, marking the 11th straight weekly increase, totaling 75.5 cents. The current price is nearly $1 above what it was in the corresponding week of 2007.

“The markets are pretty chaotic right now, and they aren’t responding to typical fundamentals like supply and demand,” said Tom Kloza, who is chief analyst at the Oil Price Information Service. “They are responding to the greatest 21st Century fundamental of all: M-O-N-E-Y. The flow of that money into various futures contracts has determined the price.”

DOE data last week showed that diesel prices declined even though inventories also fell, while gasoline inventories and prices each increased.

Trucking burns an estimated 730 million gallons of diesel and 290 million gallons of gasoline each week.

“It’s going to be tough until we get supply issues and speculators under control,” said Frank Molodecki, vice president of operations for Diversified Transfer & Storage of Billings, Mont.

In the face of record prices, DTS has started offering incentives for drivers of its 55-tractor fleet. They are paid 2 cents more a mile when they coax at least 6.5 miles a gallon out of their rigs. At current prices, the company saves at least $15,000 a month for each 1/10 of a mile a gallon improvement in fuel efficiency, Molodecki said.

In addition, DTS uses auxiliary power units to cut idling. It also has been trying new tires and aerodynamics, using more convenient fueling facilities and reducing truck speeds to lower costs, he said.

Careful routing helps, too.

“You definitely have to be very cognizant when you are building loads,” he said. “If you forget something in one town, the chances are you will have to go back 200 miles to get it.”

Fleets should not expect relief anytime soon from record prices, according to the latest predictions from DOE’s Energy Information Administration.

Diesel will remain in record territory at nearly $4.80 a gallon through August, before sliding gradually to $4.55 in December, EIA’s June 10 report said.

“This reflects strength in diesel demand, particularly in emerging markets, that has significantly increased the margins between diesel prices and crude oil costs from those of last year,” EIA said.

Gasoline is expected to remain above $4 a gallon for the rest of the year. However, fuel prices are not expected to rise much further, even if crude oil increases, because lower margins at refineries are expected, the report said.

Crude oil prices, which rose $18 a barrel in less than 36 hours earlier this month to nearly $140, settled at $136.74 June 12 on the New York Mercantile Exchange and rose 7% in seven days.

OPIS’ Kloza said price projections of up to $200 a barrel by some investment banks fueled speculation last week. He attributed part of the spike to anticipated disruptions because hurricanes could force the closure of Gulf of Mexico refineries.

The record prices continued to garner much attention on Capitol Hill.

Rep. Edward Markey (D-Mass.), chairman of the Select Committee on Energy Independence and Global Warming, decried the effect of record prices on consumers during a June 11 hearing.

“America faces a huge energy problem and it is not going away soon. . . . Unlike the energy spikes of the 1970s and ’80s, this energy spike is different,” he said. “It was not brought on by an oil embargo, nor by a surprise revolution in the Middle East. Instead, this long, painful run-up is the direct result of . . . an oil-centered energy policy that sacrificed fuel efficiency and conservation policies on the altar of drill, drill, drill.”

On the Senate side, Democrats failed to move forward a bill that would have imposed windfall profits taxes on oil companies, which led to a new focus on possible legislation to increase oversight of the Commodity Futures Trading Commission.

The CFTC, which is investigating whether speculators have driven up oil prices, convened an Energy Markets Advisory Committee meeting and formed a task force with the Federal Reserve meant to make markets more transparent.

Overseas, Saudi Arabia’s oil minister on June 9 proposed a meeting to discuss record fuel prices but no date was scheduled.

Also last week, the International Energy Agency, Paris, scaled back its forecast for global demand for a fifth consecutive month. The reduction was 70,000 barrels a day to 86.77 million barrels a day, a drop of 1/10th of 1%, saying high prices are contributing to inflation around the world.

Senior Reporter Sean McNally contributed to this report.