Fuel Average Drops Again

By Michael G. Malloy, Staff Reporter

This story appears in the Sept. 1 print edition of Transport Topics.

The U.S. average price of retail diesel continued its descent last week, falling another 6.2 cents a gallon to $4.145, the Department of Energy reported.

Diesel has declined 61.9 cents over the past six weeks, though it remained $1.282 higher than the same week a year ago, DOE said after its Aug. 25 survey of fueling stations.

Gasoline also continued on its downward track, dropping 5.5 cents to $3.685 a gallon. That left it 42.9 cents below the record $4.114 set on July 7, but 93.6 cents higher than in 2007.

The diesel price difference cost the trucking industry about $961 million more than the same week last year at a burn rate of 750 million gallons a week, and $267 million for gasoline at a burn rate of 285 million gallons a week.

Crude oil, meanwhile, held at about $115 Aug. 28, after the International Energy Agency said it would release strategic stockpiles of crude oil, if needed, following a potential hit by Hurricane Gustav on the Gulf Coast, Bloomberg News reported.

That was up $3 from the start of the week, but $30 below its $145.18 July 14 closing-price record on the New York Mercantile Exchange.

One analyst said that besides declining oil prices, other global market forces have helped push U.S. pump prices lower in recent weeks.

“Diesel prices were high earlier this summer in part because of a spike in South American distillate imports,” much of which were exported from the U.S. Gulf coast, said Andrew Reed, an oil markets analyst with Energy Security Analysis.

Reed said the biggest importer, Chile, was taking more than 100,000 barrels of U.S.-produced distillates a day in May — up from 25,000 at the start of the year, which in turn had lowered U.S. supplies. He added that South American demand for distillates has started to ease once again.

One trucking executive said that even with the prices declining, the fuel surcharges have left his customers skittish.

“Our customers have generally been cooperative with fuel surcharges, but with diesel prices so high, it does leave them on edge,” said Steve O’Kane, president of regional less-than-truckload carrier A. Duie Pyle Cos., West Chester, Pa.

“The more fuel prices come down, and stay down, it’s good for the economy,” O’Kane said. “That’s good for us, but we also have about a half-million gallons of fuel in inventory at those higher prices and I wish that weren’t the case.”

A report from the Oil Price Information Service suggested the current environment may be the right time for fleets to consider hedging.

“The huge surge in volatility has provoked some interest by fleets and other end-users into whether the next couple of months might be the best time to put on some late 2008-2009 hedges against another price spike,” OPIS said.

Reed, the oil analyst, noted that a new oil refinery in India is scheduled to open during September and will export high-quality distillate fuel to Europe.

That, in turn, will lessen Europe’s need to import high-quality distillates from the United States, which it has been doing, leaving more supplies here, he said.

“Distillates are plentiful, but it’s hard to get the good-quality diesel needed in the U.S. and Europe” to meet air-quality regulations, Reed said.

A separate survey released last month by eyefortransport said logistics companies are doing everything from reducing inventory to using better technology systems to help cut their fuel costs.

While almost half of respondents said volatile oil prices could be offset in part by technology such as route optimization software, one said that “nothing can counterbalance out-of-control fuel costs,” the report said.

Meanwhile, oil markets were warily watching Hurricane Gustav, which first formed in the Caribbean Aug. 26 and was on a track to push into the Gulf of Mexico as early as Aug. 31, potentially threatening oil production and refinery facilities, Bloomberg reported.

Gustav’s projected track prompted the evacuation late last week of several thousand oil workers in the Gulf, Bloomberg said.

Hurricane Katrina hit the Gulf Coast near New Orleans on Aug. 29, 2005, causing extensive refinery shutdowns and leading to a record 30.8-cent single-week jump in the price of diesel.

That was topped five weeks later, when Hurricane Rita slammed into the same region, pushing the price up 34.6 cents — still a one-week record gain — to a then-record $3.15 a gallon.