Retail Diesel Continues Falling

By Jonathan S. Reiskin, Associate News Editor

This story appears in the Feb. 2 print edition of Transport Topics.

U.S. retail diesel prices continued to edge down last week, as the average dipped 2.8 cents to $2.268 a gallon, the Department of Energy reported.

Commercial trucking’s main fuel has declined in 26 of the past 28 weeks and the average is now at its lowest point since June 2005.

Also last week, the national gasoline price average declined by 0.9 cent a gallon to $1.838 a gallon, DOE reported after its Jan. 26 survey of fueling stations, breaking a string of three increases.

While lower prices would normally cause glee among fleet executives, it is clear, they say, that petroleum is cheap because the economy is mired in a deep recession, people and businesses are buying far less and, therefore, there is less shipping.

“Fuel is about the only bright spot for truckload carriers,” said Robert Peterson, president of flatbed carrier Melton Truck Lines in Tulsa, Okla. “It’s been a pleasant surprise,” he said of the long fall in prices from the July 14 record of $4.764 a gallon. “This has kept a number of carriers in business, but freight demand is in the tank.”

The fall in diesel and gas prices has emboldened some shippers, Melton said, to demand lower freight rates on both spot market shipping and even contractual agreements.

Truckload carrier Werner Enterprises, Omaha, Neb., devoted much of its Jan. 22 quarterly earnings statement to discussing the effect of fuel-price movements. The company said the July-to-January slide in prices is of great benefit, but it is also the other half of the October 2007-to-July bubble, when diesel prices rose more than 50% in nine months.

“Over the past several years, Werner and the truckload industry did not recover all of the cost of rising fuel prices through fuel surcharge programs,” the company’s statement said.

“Each year in the prior four years, rising fuel costs — net of fuel surcharge collections — had a negative impact on the company’s operating income when compared to the previous year. The total negative impact on the company’s operating income due to fuel expense, net of fuel surcharge collections, during 2004 to 2007 was $61 million.”

Accordingly, both Werner and competitor Celadon Group said in their respective quarterly statements that they would maintain efforts to coax mileage improvements from their trucks through the use of auxiliary power units, aerodynamic rolling stock and lower settings on engine speed governors.

Consistent with the notion of low prices, not only is demand for diesel low, but supply is abundant. DOE’s Energy Information Administration reported that during the fourth week in January, the United States held ultra-low-sulfur distillate stocks of 84.8 million barrels.

This is significantly more than in recent years. EIA said diesel inventories a year ago were at 69 million barrels; for 2007 it was 60.1 million; and during the fourth week of January 2006 it was 75.2 million barrels for low-sulfur distillate, the fuel standard at that time.

Since July 14, there have been only two weekly price increases in the retail average, one in September and the other in January. Diesel has been cheaper than during the corresponding time 12 months before every week since Nov. 3.

The last time the average was below the Jan. 26 level was June 6, 2005, when it was $2.234. A year ago diesel cost $3.259 a gallon, or 99.1 cents more than on Jan. 26.

On a regional basis, the Gulf Coast states had the lowest average diesel price at $2.202 a gallon. New England had the highest average at $2.595.

None of the regions surveyed saw prices increase, although the Rocky Mountain states had the smallest decline at 0.6 cent a gallon. The Lower Atlantic states enjoyed the greatest price decline, 3.9 cents.

Gasoline appeared to hit bottom, for now, in the Dec. 29 survey, when it was at $1.613 a gallon. That was followed by three straight increases worth a combined 23.4 cents, before the 0.9-cent decline Jan. 26. The gasoline record was set at $4.114 on July 7.

Crude oil has been trading in a relatively narrow band lately. On Jan. 29, crude oil futures contracts on the New York Mercantile Exchange closed at $41.44 a barrel. Prices have oscillated between $48.81 and $33.87 a barrel since Dec. 5.

In underscoring the relatively low cost of fuel, Bloomberg News reported that U.S. diesel prices are lower than in Dubai, United Arab Emirates. The wire service said Jan. 15 that retailers cut the price of diesel fuel by 4.4% in dirhams to the equivalent of $2.95 a gallon.