Fuel Prices Continue to Decline as Oil Drops Below $80 a Barrel
This story appears in the Nov. 10 print edition of Transport Topics.
Diesel’s national average pump price continued to drop last week, falling 1.2 cents to $3.623 a gallon, while retail gasoline slid below the $3 mark for the first time in almost four years, the Department of Energy reported.
The declines, which DOE reported Nov. 3 after its weekly survey of filling stations, came as oil fell below $80 a barrel for the first time in more than two years.
Oil futures on the New York Mercantile Exchange finished Nov. 4 at $77.19 a barrel, the lowest closing price since October 2011.
Crude fell after Saudi Arabia cut the price it charges U.S. buyers, which analysts said signaled OPEC producers were trying to maintain market share over propping up prices.
Roger McKnight, senior petroleum analyst with En-Pro International in Ontario, said it amounted to “a crude oil price war” as North American shale-oil production keeps growing.
U.S. producers are turning out oil at the fastest pace in more than three decades, via fracking operations in the Bakken and Eagle Ford shale formations in North Dakota and Texas, respectively.
Higher production is creating a flood of North Sea Brent crude oil in Europe, which in turn is lowering the price of Nymex-traded crude futures, McKnight said.
Meanwhile, diesel’s downturn was the eighth straight and left it 23.4 cents under the comparable week last year.
The retail price of trucking’s main fuel — which was the lowest since Feb. 21, 2011 — has not risen since June, tumbling almost 30 cents since then.
Gasoline, which fell 6.3 cents to $2.993 per gallon, has plunged 71 cents since June and is 27.2 cents below a year ago. It was the lowest since the motor fuel averaged $2.982 on Dec. 20, 2010.
A major Canadian refinery that feeds U.S. markets is in the midst of a two-month shutdown, which is tempering diesel’s decline compared with gasoline, McKnight told Transport Topics.
The Irving Oil refinery in Saint John, New Brunswick, Canada, which produces 300,000 barrels a day of both fuels, will be down through the end of November, he said.
Irving is a “key supplier of gasoline and diesel to the U.S. Northeast, which includes New York Harbor [diesel-market] pricing,” McKnight said, “which is why diesel is not falling as much.”
“We’re looking for refineries to get back on stream, because [September and October] was the maintenance period. My concern right now is that distillate inventories are quite low, at the lower limit of a five-year average,” McKnight said.
Oil futures began rebounding Nov. 5 after DOE reported crude supplies rose during the last week of October, but gasoline and distillate inventories, which include diesel, declined. Distillates fell 725,000 barrels, while gasoline stockpiles fell 1.4 million barrels.
McKnight said a cold snap could quickly move diesel higher because Gulf Coast refineries also are exporting diesel and gasoline.
Looking ahead, he said OPEC oil ministers are scheduled to hold their semi-annual meeting Nov. 27, when they will consider price and production levels.
With Saudi Arabia likely to push for continued low prices and high production, other cartel members will be pushing back to get the price back to near $100 a barrel, McKnight said.
