Fuel and the Rebounding Economy

This Editorial appears in the Oct. 19 print edition of Transport Topics. Click here to subscribe today.

There was further evidence last week of the growing link between fuel prices and Wall Street, as the Dow Jones Industrial Average rose above 10,000 for the first time in a year, and the price of crude oil exceeded $75 a barrel for the first time since September 2008.

The national average price of a gallon of diesel fuel rose 1.8 cents after five straight weekly declines, while the average per-gallon cost of gasoline was up 2.9 cents after eight consecutive weekly drops.

One of the petroleum experts we talked to last week said the increases were in direct contradiction to market conditions, since the nation is relatively awash in petroleum (click here for p. 1 story).

“We have more inventories of everything — diesel, oil, gasoline — than we know what to do with,” said Roger McKnight, senior petroleum analyst for En-Pro International. He called the latest pricing “an artificial situation,” fired by speculators anticipating higher future prices when demand levels rise as the worldwide recession recedes.

Surely, the performance of petroleum prices underscores trucking’s need to continue its efforts to improve fuel efficiency, even in times like now when retail prices are relatively low.

There can be little doubt that fuel prices are going to rise as economic activity increases, notwithstanding increasing natural gas supplies in the United States and new petroleum finds in other places.

Fuel prices rose as the Commerce Department reported last week that inventory levels were finally starting to fall to levels that presage a rebuilding, which would mean more loads of freight for trucking.

Commerce reported that overall inventories fell 1.5% in August to the lowest level in nearly a year. Retail inventories recorded the greatest drop, 2.4%, while wholesale inventories were down 1.3% and factory stockpiles dipped 0.8%.

This backup of inventories has helped suppress freight levels, as businesses have been working them off slowly. Without new orders, freight levels have fallen precipitously during the recession.

Additional good news came in the form of another report from the Commerce Department that retail sales — excluding auto sales — had risen 0.5% during September, the second consecutive monthly increase.

This latest news is quite welcome, but several experts warned that inventory levels are still unusually high, and that we are not out of the economic doldrums quite yet.

But it seems surer every day that we have passed through the worst of the recession and recovery is under way, even though it is not yet robust enough to satisfy anyone.