Fuel Prices Continue Plunge

By Rip Watson, Senior Reporter

This story appears in the Nov. 10 print edition of Transport Topics.

The U.S. retail diesel fuel average dropped 20 cents to $3.088 a gallon last week, the lowest price in more than a year as inventories remained high and demand remained low, the U.S. Department of Energy reported.

Gasoline prices fell even faster, 25.6 cents a gallon to $2.40, the lowest level in 20 months, DOE said after its Nov. 3 survey of fueling stations.

After dropping about 20 cents for four straight weeks, diesel fell to its lowest point since Oct. 15, 2007, when the average was $3.039. Trucking’s primary fuel now has dropped $1.676, or 35%, from its peak of $4.764 a gallon in July.

Diesel is now 21.5 cents below a year earlier, while gas is 61.3 cents lower.

An analyst said he did not expect any significant movements as a result of the presidential election last week.

“I don’t think anything that happened in the election is going to change anything in the short run in the fuel markets,” said Alaron Trading Corp. analyst Phil Flynn. “The biggest concern is the global economy. Ultimately, it is going to be the health of the economy that determines energy prices.”

For truckers, the continuing price decline has begun to offer some relief after a difficult year.

“We feel a lot better where it [diesel] is now than where it was,” said Rick Prickett, chief financial officer of Western Express, Nashville, Tenn., No. 48 on the Transport Topics 100 list of the largest for-hire carriers in the United States and Canada. “It sure had a devastating effect on the industry during the couple of quarters when diesel hung around at astronomical levels.

It took a lot of the fun out of trucking.”

Prickett cautioned that “we don’t think this is going to be a forever situation with fuel staying down. As the economies recover, we are going to see another run-up. Then there is the effect from making fuel and heating oil; who knows what the winter will bring?”

In recent weeks, diesel prices measured by DOE have followed the downward path of crude oil futures that peaked at $145.18 a barrel this summer, and settled at $60.77 on Nov. 6. Distillate demand now is 5% lower than at this time last year, and inventories increased to 127.8 million barrels, according to DOE.

“Even though diesel has come down, there seems to be some kind of a misconception in the marketplace, especially with those outside the industry who think we are making all kinds of money,” said Ike Brown, vice chairman of NFI Industries, Vineland, N.J., No. 28 on the TT 100 for-hire list. The decline in diesel “definitely has helped. There is a lag factor with the fuel surcharge. We kind of make it up when the price is on the way down.”

Brown noted that the drop in gasoline, which reached its lowest level since the week ended March 15, 2007, has been much steeper than diesel’s decline. Measured against the June 16 gasoline peak at $4.082 a gallon, that fuel has dropped 41%.

At the latest price levels, diesel costs 69 cents a gallon more than gasoline — the biggest gap be-tween the fuels since June. Flynn attributed the faster drop of gasoline’s price to changes in inventory levels.

Regardless of the fuel, lower prices help truckers, who burn about 750 million gallons of diesel and 285 million gallons of gasoline a week, according to American Trucking Associations.

When diesel was $4.764 a gallon, the industry’s weekly bill was $3.6 billion, which fell to $2.3 billion based on last week’s price. Similarly, the lower gas prices save about $479 million a week for fleets, compared with its peak.

“Lower diesel prices definitely have had a positive financial im-pact — that’s for sure,” said Brian Hall, senior vice president of business development for D.M. Bowman, Williamsport, Md.

“That’s especially true with the rapid drops occurring in succession,” he added. “But we still have-n’t made up for the negative impact of the rise that has occurred over the past year.”

Hall said that since fuel prices dropped from their peak, the company’s fuel surcharge recovery has improved by 8 cents a mile.

Brown pointed out that on average, the fuel surcharge only covers about 80% of costs be-cause surcharges don’t apply to deadhead and out-of-route miles. He also said lower diesel prices have helped to bring more truckload freight to NFI that had been moving by intermodal means.

Agreeing with Brown, Hall said “we are still not recovering the full cost of fuel by any means.”

The sudden changes haven’t yet prompted Western or NFI to change their buying habits, but Prickett said his company is evaluating what the best fuel-buying strategy might be.

Hall said Bowman continues to be vigilant in managing cost factors such as idling time and out-of-route miles while adding new fuel optimization technology.

“Fuel is still a very high cost,” he said. “We have to be extremely diligent.”