Fuel Jumps 14.6¢ to $2.498

This story appears in the June 15 print edition of Transport Topics.

Still smarting from record fuel costs last year and fighting to survive a global recession, the trucking industry is wincing over a five-week run-up in diesel prices, capped by a 14.6-cent jump last week.

The latest increase is the sharpest weekly spike since late May 2008, when diesel leaped 22.6 cents on its way to all-time high of $4.764 per gallon last July.

Meanwhile, gasoline prices continued a nine-week rise last week, reaching an average $2.624 a gallon, up a dime from the previous week, the U.S. Department of Energy reported.

Following a 7.8-cent jump the week earlier, diesel spike last week brought the national average price to $2.498 a gallon, DOE reported in its latest weekly survey of filling stations.

However, at least one oil analyst predicted that the jump in diesel would be short-lived.

“I would say, a month from now, we could lose that entire 14-cent gain,” said Andrew Reed of Energy Security Analysis Inc. in Wakefield, Mass.

“This obviously has to do with rising crude prices,” Reed said. “There’s nothing in the diesel fundamentals that would support higher prices.”

“There’s a big surplus of diesel globally right now,” Reed said. “Countries with surplus barrels traditionally can most profitably export them to Europe . . . but demand in Europe is so weak now that inventories are skyrocketing.”

His firm, Reed said, does not see the price of diesel going much higher. “If anything, we believe it’ll back off,” he said.

The rising price of crude oil — $71 a barrel June 10 — is driving up diesel and gasoline prices, said Reed and another analyst, Tancred Lidderdale of the DOE.

Both analysts said, however, they do not believe the run-up in crude prices signals increased demand for oil or a recovery for the global economy.

“Some of the strength in the price of crude oil is definitely attributable to expectations that the market may be turning in terms of the supply-and-demand balance,” Lidderdale said, adding, “It is too early, however, to know if the economy is on the rebound.”

“Some of that expectation is based on what . . . people perceive to be happening in the emerging economies of India and China, which is where they believe the real strength and demand is right now,” he added.

Neither Reed nor Lidderdale used the term “speculators” to describe what may be driving up crude oil prices and subsequent prices at the pump.

Trucking firm executives were not as hesitant, however.

“There are speculators in the market,” said Mike Hineman of Skinner Transfer, a general freight hauler in Reedsburg, Wis. “They convince people that the price is going to go up so the market goes up,” he said.

Hineman directs Skinner’s information systems and does the fuel buying. Whatever the driving force, the rise in prices is making it harder to do business, he said.

“A lot of freight that you haul through third-party brokers, you don’t get that fuel surcharge from them,” Hineman said. “So, your costs go up and your rate’s not going up.”

About 40% of Skinner’s freight comes from brokers or third-party logistics firms, said Hineman. Skinner’s fleet is down to about 90 trucks compared with 120 trucks 18 months ago, he said.

Andrew Boyle, CEO of Boyle Transportation in Billerica, Mass., also questioned why diesel prices have been rising.

“It’s perplexing because there doesn’t seem to be any fundamental support for a price increase,” Boyle said. “Maybe the bear market rally in equity markets is carrying over to commodities.”

Keith Tuttle, president of Motor Carrier Service Inc., a Northwood, Ohio, firm, said the rising diesel prices were surprising given that “tonnage is down, miles are down and rates are down.”

If diesel continues to rise “it’s going to be a wrestling match this year” for haulers not covered by fuel surcharge provisions, said Joel “Bud” Wallace, who heads his family’s agricultural hauling businesses, Wallace Transport and Cascade Drayage, in California’s San Joaquin Valley.

Wallace’s contracts contain fuel escalators and his is a long-time family firm that can weather fuel price jumps even when tonnage drops, he said.

“A lot of carriers are really leveraged out there,” he said. “We don’t like the money we’re making, but we’re not like other guys who’ve got huge payments and no income.”

In Ohio, trucking is so dependent on the severely-depressed auto industry that any uptick in diesel prices hurts haulers, said John Hofstetter, president of Orran Hofstetter Inc., a bulk commodities carrier in Orrville, Ohio.

“I know there’s no shortage of oil, so it’s being driven up by the futures traders,” Hofstetter said. “I don’t care if they run the price of gold or silver up. . . . You don’t need that . . . but when you’re talking about the energy we all have to use on an everyday basis . . . it hurts us all.”

Reed, the analyst, said that the diesel market is so weak now that he does not believe diesel costs will be high even this fall, when diesel prices usually rise because of heating oil demand.

The United States had 361.6 million barrels of oil stockpiled as of June 5, the U.S. Energy Information Administration said.

That’s down from the week of April 24 when there were 374.7 million barrels, but the current stockpiles are still higher than June 6, 2008 when they totaled 302.2 million barrels.