Fuel Prices Continue Steep Slide

By Sean McNally, Senior Reporter

This story appears in the Nov. 24 print edition of Transport Topics.

The average price of U.S. retail diesel fuel continued to slide last week, falling 13.5 cents a gallon to a 17-month low of $2.809, the Department of Energy reported.

The drop was the seventh straight for trucking’s primary fuel, totaling $1.15 a gallon. The average is now at its lowest point since June 18, 2007, DOE said after its Nov. 17 survey of fueling stations.

Diesel has fallen nearly $2 a gallon since hitting a record high of $4.764 on July 14 and sits 60.1 cents below prices from a year ago.

The declines also have pushed the average price below $3 a gallon in all five of DOE’s reporting regions for the first time since September 2007.

Tom Kloza, an analyst with the Oil Price Information Service, told Transport Topics the declines have been driven by recession concerns.

“Everybody knows that recessions knock down demand for gasoline, but there’s probably less coverage of how it knocks down commercial demand for diesel fuel,” Kloza said.

Declines in the price of crude oil and gasoline have pushed diesel prices down as well, he said. Diesel, Kloza said, has “been rendered a piker basically by what’s happened with gasoline prices.”

Last week, the DOE average gasoline price fell another 15.2 cents a gallon to $2.072.

The ninth straight weekly decline in the gasoline average pulled that fuel down to its lowest level since March 14, 2005.

During its slide, gasoline has fallen $1.763 a gallon and is now $1.027 a gallon cheaper than it was at this same time last year.

Since hitting a record of $4.114 a gallon on July 7, the price of gasoline has fallen 49.6%, or $2.042 gallon.

Crude oil prices also have been on the decline, falling to a nearly two-year low in trading last week.

On Nov. 20, the price of crude oil closed at $49.62 a barrel

on the New York Mercantile Exchange, which is its lowest closing price since May 23, 2005. Since hitting a record high of $147.27 on July 11, the price of a barrel of oil has fallen 66%.

Diesel prices will continue to drop with crude, Kloza said, suggesting that a $5 drop in the price of a barrel of crude could trim “12 to 15 cents” off a gallon of diesel.

The declines in diesel prices have been a welcome relief to truckers stung by a weakening economy.

“We are seeing the benefits of lower prices,” said Arvis Harris, president of Rosedale Transport Inc., Dalton, Ga.

Harris said Rosedale has a lot of money tied up in receivables that are “35, 40, 45 days” out, but the carrier is paying for fuel in seven-day cycles, providing a increase in cash flow as prices fall.

“We’re seeing cash increase substantially because of that,” he said.

Despite the slight bump in income, Harris said there was still “a substantial [negative] impact on earnings from fuel.”

“It’s not back to normal, but it is better than it was,” Bruce Shelton, manager of marketing and traffic, A&B Freight Lines, Rockford, Ill., said of fuel prices.

Shelton said the weak economy was making it harder for fleets to recoup expenses, including fuel.

“What we’re running into is the fact that so many shippers are capping everything,” he said.

Shelton said those caps cut into the fleet’s bottom line, because they are often lower than A&B’s costs.

“The biggest problem we have,” he said, “is if we don’t do it, our competition will take the business.”

Meanwhile, in its weekly report on inventories, DOE said that crude oil stocks rose 1.6 million barrels last week to 313.5 million. A year ago, U.S. crude inventories totaled 314.7 million barrels.

Also last week, gasoline inventories rose 539,000 barrels to 198.6 million, their highest point since Aug. 8 when the inventory total was 202.8 million barrels, DOE said. The increase pushed inventories 3.6 million barrels higher than at this time last year.

Distillate stockpiles, which include both diesel fuel and home heating oil, fell 1.5 million barrels to 126.8 million barrels.

An analyst said he expects crude oil inventories to continue to rise as a byproduct of weak demand.

“Demand is so soft that inventories have to rise,” Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Ky., told Bloomberg News.

“We’re seeing prices we haven’t seen in a few years and it hasn’t sparked demand,” Mike Zarembski, senior commodity analyst at OptionsXpress Inc. in Chicago, told Bloomberg.