Fuel Drops for 12th Week, Diesel Average at $3.648, but Oil Price Spikes

This story appears in the July 9 print edition of Transport Topics.

Retail diesel prices declined for a 12th straight week, dipping 3 cents a gallon to $3.648, the Department of Energy reported, but a spike in crude oil prices could signal an end to the downturn.

Diesel has dropped 50 cents during the current streak of weekly declines and is 20.2 cents a gallon cheaper than it was a year earlier, DOE said after its July 2 survey of fueling stations. The average is now at its lowest level since Feb. 21, 2011.

The retail regular gasoline average, meanwhile, fell 8.1 cents to an average price of $3.356, the lowest since Jan. 2. Gas, which is 22.3 cents lower than a year ago, has fallen 58.5 cents during a stretch of 13 consecutive declines.

Pump prices have mirrored the path of crude oil, which steadily dropped to $77.69 per barrel on the New York Mercantile Exchange on June 28, from a May 1 closing price of $106.16.

In the following three trading days, however, crude oil prices surged nearly $10 to an $87.66 a barrel closing price on July 3.

“There’s so much going on in Europe and with the economy as a whole, causing prices to run way, way up,” said Brad Simons, president of the Pathway Network of Maxum Petroleum. Pathway, Oklahoma City, offers petroleum services for trucking companies, including hedging and fuel management.

“It’s too soon to call a bottom to the market — for crude or diesel — but prices have been in a free fall since May, and now there’s at least a temporary bottom to that,” said Simons, adding that diesel usually follows crude oil very quickly.

“A trucking company will already be having a bad week if its fuel surcharge went down on [July 2],” he said.

An official at Transgas Inc., Lowell, Mass., a liquefied natural gas hauler that operates mostly in the Northeast, said the declining price of diesel has been a boon to the company’s bottom line.

“Fifty cents is a huge amount of money on the cost of one gallon of diesel fuel,” said John Sorota, director of fleets, facilities and pipeline operations at Transgas, which purchases its diesel on a wholesale basis and fuels its trucks at its terminal.

Some of that relief may be coming to an end, however.

Sorota said the price of diesel quoted by his company’s wholesale suppliers jumped nearly 16 cents between June 29 and July 2.

“That’s a big increase,” Sorota said. “I’d like to think that maybe [diesel] could go down some more, but from the past few days, it certainly looks like it’s climbing back up again.”

Regardless of current prices, carriers are always looking to improve their fuel efficiency.

Robert Ragan, chief financial officer at Melton Truck Lines Inc., Tulsa, Okla., said the company has invested in new tractors with moreefficient engines and auxiliary power units on nearly all of its trucks.

Melton also implemented bonus programs for its drivers, who can earn an extra 1 to 3 cents per mile for their performance, with miles per gallon being the biggest factor.

“In general, whether it’s an environment where diesel prices are falling or diesel prices are increasing, the shipping community expects all carriers, especially the carriers of size, to invest in technologies and strategies to improve our mpg,” Ragan said.

Sorota said Transgas is always looking at new equipment and technology “to squeeze that extra little bit of mileage out of our tractors,” including fuel-

efficient tires and telematics.

In the end, though, driver behavior is just as important to fuel efficiency, he said.

“The biggest thing, anyone will tell you, is the driver behind the wheel,” he said.

Melton’s Ragan added that, while it’s possible diesel could continue to drop, he’d “be surprised if it continued at this pace much longer.”

Historically, when times are good, diesel prices increase, he said. But when times are more difficult, fewer people are on the roads, and they consume less fuel.

“I don’t particularly see a rapid escalation anytime soon,” Ragan said. “We could settle into a band here — a range — that doesn’t move a lot for a period of time.”

Simons said he expects lots of volatility in coming months because there is no obvious trend now for the market to follow. Sanctions against Iran and a strike by oil workers in Norway could drive crude prices up, he said, but bad economic news in Europe and questions about the U.S. economy will likely limit the increase.