U.S. Fuel Prices Skyrocket; Retail Diesel Jumps 14.3¢ to $3.716

This story appears in the March 7 print edition of Transport Topics.

U.S. retail fuel prices shot up last week as petroleum closed above $100 a barrel for the first time since September 2008 and as unrest in Libya and the Middle East left people in trucking wondering how high prices might go and how long they might stay there.

The Department of Energy said Feb. 28 that the national retail diesel price average jumped 14.3 cents a gallon to $3.716, the 13th straight weekly increase. DOE also said the gasoline average leapt by 19.4 cents to $3.383 a gallon, the second-largest weekly movement behind the 45.9-cent increase after Hurricane Katrina in 2005.

“Today, I’m seeing an increase of 12 cents a gallon in just one day. This is way faster than in 2008. I think there will be repercussions to this, but they haven’t sunk in yet,” Andy Owens Jr., operations manager of A&M Transport, a Glendale, Ore., truckload carrier, said last week.

A&M buys fuel in 10,000-gallon wholesale quantities, usually about one container every other day, or five a week.

“Every price increase of a couple of pennies is a couple of hundred dollars more,” Owens said.

“This is a big problem for trucking,” said Bob Costello, chief economist of American Trucking Associations. “At this point, I’d expect — for many fleets, especially truckload — for fuel to surpass labor as the highest expense. But it goes beyond that, because it has the potential to hurt their freight volumes, too.”

“If you and I are spending more to commute to work, we have less money to spend elsewhere,” Cos-tello explained.

ATA said that trucking uses about 653 million gallons of diesel a week. Therefore, the 14.3-cent price in-crease for the week adds more than $93 million to the costs in the nation’s supply chain in just one week.

Diesel is 17.5% more expensive than it was on Nov. 29, the last time it declined in DOE’s weekly survey of filling stations — to $3.162 a gallon — and 29.9% more expensive than it was a year ago at $2.861.

For gasoline, the rates of increase are 18.5% over Nov. 29 and 25.2% over a year ago.

Diesel and gasoline prices started rising at the end of November, coinciding with reports of the economic recovery gaining traction. But lately, news from the Middle East has driven petroleum markets.

“Prices are up on concern that the problems in Libya will escalate, taking the remainder of the country’s oil off the market, and spread elsewhere,” Gene McGillian, an analyst and broker at Tradition Energy, Stamford, Conn., told Bloomberg News. “As long as the revolt continues, you are going to see a substantial risk premium in the oil price,” he added.

“This is a very serious issue. I think prices are more volatile than in 2008,” said Michael Moran, vice president of Moran Transportation & Distribution, Elk Grove Village, Ill., and chairman of the Distribution & LTL Carriers Association. In July of that year, diesel hit a record $4.764 a gallon.

“This could knock a lot more carriers out of business if it continues,” Moran said. “Most of them used up a lot of their savings during the recession.”

The timing of the price surge is particularly discouraging because carriers have been enjoying better freight volumes “and are just starting to reinvest and take calculated risks,” he added. “We’re watching our volumes carefully now.”

As for crude oil, it was steady between about $97 to $98 a barrel for four trading days from Feb. 23 to Feb. 28 on the New York Mercantile Exchange, but it moved up to $99.63 on March 1 and then to $102.23 on the 2nd, before closing at $101.91 on March 3. During the week of Feb. 14-18, a barrel ranged between $84.30 and $86.40.

“I think the pace of the rise will slow dramatically and that we are near the top,” said Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service in Wall, N.J., “but I don’t see there being a rapid drop unless there is a clear sign that high prices are affecting the economy.”

OPIS monitors wholesale prices at the nation’s diesel racks, and Brockwell said the increases have squeezed margins for truck stops and other vendors.

“There’s no question about it, wholesale prices have been rising faster than retail prices,” Brockwell said. “Profit margins for selling diesel have been below gasoline margins for most of this year, and that’s usually not the case.”

As for who benefits from the increases, Brockwell said, “Companies with crude oil in the ground are doing very well, and refiners have pretty good margins. If you’re at the front end of the supply chain, you’re doing better than if you’re at the back end, closer to retail.”