Diesel Soars 10.5¢ to $2.705

This story appears in the Oct. 26 print edition of Transport Topics.

The average U.S. price of diesel jumped more than 10 cents a gallon and gasoline rose nearly as much last week, while petroleum closed above $81 a barrel on national commodities markets for the first time in more than a year.

The diesel average — as measured in the Department of Energy’s weekly survey of filling stations — hit $2.705, a 10.5-cent gain. That increase, coupled with the one the week before, more than eliminated the five consecutive weekly declines since Aug. 31. The last time diesel topped $2.70 was Nov. 17, 2008, when it was falling fast from that summer’s record.

DOE also said the U.S. gasoline average gained 8.5 cents a gallon to $2.574 in the Oct. 19 survey. That marked the second weekly increase after eight declines, but remained well below the year-ago price of $2.914 a gallon.

Meanwhile, on Oct. 21, crude futures leapt by more than $2 a barrel on the New York Mercantile Exchange to $81.37 a barrel. The movement came after DOE’s Energy Information Administration reported that total U.S. stocks of gasoline fell 1.1% from the previous week. Crude closed at $81.19 on Oct. 22.

The price spiral was not being driven by demand for fuel. “Energy markets are ignoring their supply and demand fundamentals now, and oil is acting as an alternative investment to a weak dollar,” said Brad Simons, president of Simons Petroleum’s Pathway Network for diesel fuel purchasing.

While inventories of oil and diesel are still high, which should normally keep prices low, buyers and sellers are acting based on hunches about the economy as a whole, he added.

“There’s still anxiety out there, and also anticipation of a U.S., and even global, economic recovery,” Simons said. He said traders know a growing economy would increase the demand for oil and refined petroleum.

Even with last week’s increase, diesel is 22.3% lower than a year ago, when it stood at $3.482. However, fuel is still a major concern for fleets.

“It’s still one of our three top expenses,” said Thomas Budnik, treasurer of Tank Star USA.

“We have benefited from the price going down, but now shippers want a better break on fuel surcharges. And with the surplus of hauling capacity out there, shippers have lots of alternatives,” Budnik said.

Werner Enterprises noted in its earnings report steadily rising prices during the first half of October hindered its ability to recoup expenses through surcharges.

“The company continued to achieve meaningful fuel miles-per-gallon improvements through its ongoing fuel management programs, which also helped reduce the company’s fuel costs. Due strictly to mpg improvements from these fuel management programs, which began in March 2008, Werner purchased 1.2 million fewer gallons of diesel fuel in third quarter 2009 compared to third quarter 2008,” the report said.

Meanwhile, DOE also reported that gasoline stockpiles declined to 206.9 million as of Oct. 16, from 209.2 million the week before. Shortly after that announcement, crude started to soar on NYMEX.

“The gasoline number has clearly changed the landscape,” John Kilduff, senior vice president of energy at MF Global, told Bloomberg News.

However, another analyst in the same report concentrated on distillate stocks, the basis of diesel fuel.

“There’s still plenty of oil on the market,” said Richard Ilczyszyn, a senior market strategist with Lind-Waldock in Chicago. “The main driver right now is distillate because of the time of year, followed by gasoline and only then by oil.”

Ultra-low-sulfur U.S. distillate stocks declined to 98.1 million barrels, DOE said. The week before they were at 99.5 million.

At the start of the week, Bloom-berg described the key events moving markets as lackluster earnings that led the Standard & Poor’s 500 stock index to dip. Other reports showed crude inventories on the rise, housing starts growing slowly and building permits declining. That news actually caused the U.S. dollar to stop falling against the euro and keep oil prices below $80 a barrel until Oct. 21.

After the gasoline stocks report, Bloomberg said, oil prices rose, along with some share prices and the dollar slipped against the euro.

The quickly moving chain of events led Simons to tell Transport Topics that “the key is to watch carefully to see if oil becomes detached from equities.” He said that if diesel, gas and oil moved mainly on their own supply and demand, rather than as an important investment option, they would be cheaper.

“But they may stay hooked up for quite a while longer,” he warned.