Fuel Prices Continue Downward

By Jonathan S. Reiskin, Associate News Editor

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

Fuel prices last week continued their slide from July’s record highs, as the U.S. retail average for diesel fuel dropped for an eighth straight week and gasoline for the ninth.

The Department of Energy in its weekly survey pegged the national diesel average at $4.059 a gallon on Sept. 8, 6.2 cents below the Labor Day reading of $4.121. Over the same period, DOE said retail gasoline dropped 3.2 cents to $3.648 a gallon, on average, from $3.68.

Crude oil also continued down, despite hurricanes in the Gulf of Mexico, declines in U.S. petroleum stocks and an OPEC decision to cut oil production. On Sept. 11, trading on crude oil in New York closed at $100.87 a barrel — the lowest price since March 24.

One trucking executive said he was enjoying the break now, but remains worried.

“We’re loving the advantages now, but my gut feeling is that it will go back to the mid-$4-a-gallon level,” said Michael Moran, vice president of Moran Transportation & Distribution, a Chicago-based less-than-truckload carrier.

Moran said he assumes the worst, “because to do anything else would be negligent,” so to save money, his regional carrier is automating billing to cut postage costs, optimizing delivery routing and even parking some trucks so he can squeeze spending and pay his fuel bills.

At truckload carrier Jet Express of Dayton, Ohio, President Kevin Burch said safety performance is up because owner-operators are slowing down to save fuel.

“Their habits have changed,” said Burch, whose company uses both company and independent drivers. “We do a rolling 30-month history on speeding violations, and there’s been a reduction in citations and warnings. Idling time has been reduced, and owner-operators seem to be doing more maintenance on their trucks, all because of fuel prices.”

Diesel, gasoline and crude oil have all taken roller-coaster paths this year. Starting from a base of less than $3.30 a gallon in February, diesel roared to a record $4.764 on July 14. From then to Sept. 8 it has fallen 70.5 cents, or 14.8%.

Gasoline surged to $4.114 July 7 and has fallen 46.6 cents a gallon or 11.3% since then.

“We’ve definitely seen a pullback, but the market’s still higher than a year ago,” said Chad O’Neil, vice president of the Pathway Network at Simons Petroleum in Oklahoma City. Pathway provides fuel management services, including hedging, for trucking companies.

“Our speculation is that the third and fourth quarters will see less price volatility than we have so far this year,” said O’Neil. “We don’t have a whole lot that’s driving up prices now, but I don’t see them falling much farther, either.”

The recent declines notwithstanding, the year-ago prices seem like distant memories: When oil was less than $80 a barrel, diesel was less than $3 a gallon and, for a six-month stretch, fuel fluctuated within a slender 25-cent range.

Bloomberg News reported from a meeting of the Organization of Petroleum Exporting Countries Sept. 10 that its secretary-general, Abdalla El-Badri, considers the global market to have a “huge oversupply” of crude.

Therefore, the 12-nation cartel that produces 40% of the world’s oil will try to stick more strictly to its September 2007 quotas that add up to 28.8 million barrels a day. If the policy works, it will cut world production of oil by about 500,000 barrels a day, Bloomberg said.

However, The New York Times reported Sept. 11 that Saudi Arabia, one of OPEC’s most powerful members, will ignore the cartel’s edict and produce at a rate higher than its quota.

DOE’s Energy Information Ad-ministration said Sept. 10 that U.S. crude oil stocks fell by 5.9 million barrels over the course of a week to 298 million on Sept. 5. Distillates, including diesel, fell by 1.2 million barrels and gasoline dropped by 6.5 million barrels. The news triggered a brief price increase for crude that day, but the commodity wound up closing down by almost a dollar a barrel from the previous day.

Pathway’s O’Neil said he thinks the two main reasons crude prices have dropped are that hedge funds have been backing away from oil speculation in recent weeks and demand has been cut by poor economic performance in the United States and Europe.

The Associated Press reported that the U.S. dollar’s recent appreciation against the euro also has helped to cut the price of oil.

As for the hurricane season, neither Gustav nor Hanna caused significant damage to production, although preparation for Gustav did curtail production, and Ike was expected to hit Texas on Sept. 12 or 13.