Fuel Price Averages Decline

This story appears in the Dec. 6 print edition of Transport Topics.

In a slow retreat from the two-year high it reached in November, the U.S. retail diesel price average slipped again last week, falling 0.9 cent to $3.162 a gallon, the U.S. Department of Energy reported after its weekly survey of filling stations.

Despite two weeks of declining prices, however, trucking’s main fuel still costs nearly 39 cents a gallon more than a year ago.

An autumn price run-up, spurred in part by competition from the heating-oil sector — like diesel, heating oil is a distillate — sent the price of diesel to $3 a gallon in October, a level not seen since May.

The price peaked on Nov. 15 at $3.184 a gallon.

Gasoline’s average retail price also declined for the second consecutive week, dipping 2 cents from $2.876 to $2.856 a gallon, DOE reported. Last year at the corresponding time, a gallon of gasoline retailed for 22.7 cents less.

However slight, the consecutive dips in diesel prices gave truckers a respite in which to recoup and regroup.

“We adjust our surcharges every week,” said Mike Hineman, who buys the fuel for Skinner Transfer Corp. in Reedsburg, Wis. “If [the price] goes up for a long time, you’re really behind, and if it drops for quite a while, then you gain quite a bit.”

Skinner, whose company is a general freight hauler with a fleet of about 100 tractors, said he had “slowed the trucks down to 65 [mph]” in the spring to save fuel. Beyond that, he said, there’s not much more he can do about diesel costs aside from hoping prices will keep falling.

Prices will fall, said Andrew Reed, a distillate expert in the Wakefield, Mass., office of Energy Security Analysis Inc., because the run-up in diesel prices was the result of temporary, not long-term, conditions.

“On the one hand, we’ve got cold weather heating oil demand that’s driving up prices,” Reed said. “And on the other hand, we’re exporting an awful lot of diesel to Europe right now.”

There has been a rapid draw on ultra-low-sulfur diesel stocks here, Reed said, but not because of U.S. demand.

Europe’s biggest oil importer, France, is rebuilding its diesel inventories after recent labor strikes in that country interrupted production at French oil refineries, Reed said.

According to the U.S. Energy Information Administration, stockpiles of ULSD that were at 108.7 million barrels Oct. 1 had fallen to 94.8 million barrels by Nov. 19.

Even so, that inventory level is still a healthy “cushion” that will hold down both diesel and crude oil prices, Reed said, adding that the weak U.S. dollar is expected to strengthen, which will also reduce crude oil prices.

Crude closed Dec. 2 on the New York Mercantile Exchange at $88 a barrel, which, according to Bloomberg News, was the highest settlement price since Oct. 8, 2008.

On Dec. 2 of last year, crude oil closed on the NYMEX at $76.06 a barrel.

Reed said steady crude prices and healthy inventories will continue to push diesel prices down until they are back below $3 a gallon.

Falling prices in winter would be especially welcome in Shelby, Mont., where night temperatures already are 20 degrees below zero.

Drivers for Dick Irvin Inc., a Shelby-based carrier located 35 miles from the Canadian border, have to run the truck engines all night even with their bunk heaters, said Mike Irvin, who runs the company his father started with one truck in 1951.

“You could burn up to four or five gallons an hour that way,” said Irvin.

Weather, weight and location make his fuel costs so high, Irvin said, adding that it “just scares the hell out of you, what you’re paying for fuel a month.”

For his fleet of about 80 trucks, the fuel bills run, depending on the price, “anywhere from $55,000 to $65,000 a month,” he said.

Irvin recoups some of that cost because he has only 32 company drivers and about 50 independent operators who reimburse him for their fuel.

Irvin hauls dry bulk goods, largely fertilizer and lime, as well as grain in hopper-bottom units, within an 800-mile radius of his location.

Loaded, his trucks can weigh as much as 120,000 pounds, which also adds to fuel costs. And most of his trucks also need special pneumatic blowers for unloading the fertilizer, Irvin said.

As a result, there is little room on Irvin’s trucks and little margin in the weight limit to add auxiliary power units that would cut down on idling time, he said.

To save fuel on runs that are almost all longhaul, Irvin said, truck engines are governed at 62 mph.

“It saves a lot that way, because anything over 60, the percentage really goes up as far as tire wear, fuel consumption, brakes, all that,” Irvin explained.