Opinion: Fuel Prices — These Are the Good Old Days

By John Moscatelli

Industry Solutions Director

Transportation and Automatic Vehicle Location

AT&T Industry Solutions Practice

This Opinion piece appears in the March 16 print edition of Transport Topics.

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As I write this in early March, the U.S. Department of Energy reports that the price of diesel fuel in the United States is $2.045 per gallon. After hitting a record high of $4.764 on July 14, the price of diesel has fallen by $2.719. The price on March 9 was $1.774 less than the same week a year earlier and even lower than the four-year low of the previous week.

“Wonderful,” you say? I say this is most likely the calm before a permanent storm. It may be the last time we ever see fuel prices in this range.

I had a customer say to me recently that the return on investment on the proposed electronic onboard recorder solution he was considering no longer made the same compelling case with the lower fuel prices. I shared the following personal opinion as to why I disagreed:

Last year, when prices passed $4 a gallon, it was difficult to keep up with all the calls from customers seeking to drive fewer miles, minimize idling time, monitor engine performance, capture out-of-route miles, make more stops, etc.

Fleets of all types — private, for-hire and government — were anxious to investigate the use of technologies to drive efficiencies.

To borrow a couple of popular phrases from the recent election: “My friends,” don’t relax with current prices, because “change is coming.”

According to a recent report from The Associated Press, the National Commission on Surface Transportation Infrastructure Financing, a 15-member panel created by Congress, has become the second group in a year to call for higher fuel taxes.

The commission members indicated that because we all are driving fewer miles, not enough tax revenue is generated to keep pace with the cost of road, bridge and transit programs.

Accordingly, the commission members said they would urge Congress to raise the diesel tax by 12 cents to 15 cents a gallon. Some also called for a mileage tax to make up for the revenue shortfall resulting from fewer miles being driven.

What is 12 cents to 15 cents a gallon, you ask? Not much when you consider the $4.764 we’ve already paid by this point — or perhaps even $8 a gallon. But it is a start, right?

But where, you ask, did I get $8 a gallon?

We’ll get to that point, but first — let’s face reality. In my opinion, the main reason for the declining price of fuel is that the economy has depressed demand. The demand slowed much faster than supply could be closed off.

Now this trend seems to be receding. Demand from industrialized countries is still falling but more slowly, according to Barclays Capital. If we expect the economy to recover, rising prices are an eventual, natural result.

So, in this brief respite, perhaps we will increase our sourcing of crude, but probably not. The incoming Obama administration and new Congress have suggested that they may reverse the pro-domestic oil drilling measures enacted since last summer. That is access to an estimated 90 billion barrels of untapped oil sitting beneath the ocean along the outer continental shelf, according to Kiplinger Business Resource Center.

Maybe we will tap into the more than 1.5 trillion barrels of oil we have in U.S. oil shale reserves, which the Department of Energy itself said is more than five times the reserves of Saudi Arabia.

In fact, our total untapped reserves are estimated at about 2.3 trillion barrels, nearly three times the reserves held by OPEC nations and sufficient to meet 300 years of demand — at current levels — for auto, truck, aircraft, heating and industrial fuel, without importing a single barrel of oil. But technology hurdles and a reluctance to be truly energy self-sufficient must be overcome.

Steven Chu, sworn in as secretary of energy in January, told The Wall Street Journal in September that “. . . somehow we have to figure out how to boost the price of gasoline to the levels in Europe.”

Chu said he favors gradually ramping up gasoline taxes over 15 years to nudge consumers into buying cars that are more fuel-efficient and homes that are closer to work.

By the way, diesel was $7 to $8 a gallon in Europe, depending on the country, when he made that statement. In France, 70% of the cost of fuel is taxes.

Consider all this while there is political turmoil in the oil-producing areas and growing competition from other countries of the world for conventional petroleum supplies.

So, back to where I started, diesel may be $2.045 a gallon today, but a prudent business should be planning for it to return to more than $4 gallon.

Of course, one way to deal with the return of higher prices is to use wireless transportation technologies to minimize the effects.

But one way or another, there is a saying: “Nothing is worse than doing nothing.”

AT&T’s Transportation Industry Solutions Practice was initiated two years ago. The author, whose experience includes 19 years with Ryder Transportation Services, is based in Tampa, Fla.