November 5, 2007 7:45 AM, EST

Diesel, Crude Oil Hit New Records

Fuel Gains 6.3¢ to $3.157 as Oil Tops $96 a Barrel

By Michael G. Malloy, Staff Writer
This story appears in the Nov. 5 print edition of Transport Topics.
Retail diesel prices continued to climb last week, with the national average jumping 6.3 cents to $3.157 a gallon, matching the record set two years ago, according to the Department of Energy.
Since Labor Day, diesel has now risen seven out of eight weeks, totaling 26.4 cents, and last week’s increase was the steepest. The latest pump price equals the record set Oct. 24, 2005, in the aftermath of hurricanes Katrina and Rita, DOE said after its Oct. 29 survey of fueling stations.
The current price is 64 cents a gallon higher than a year ago. For the trucking industry, which burns about 730 million gallons a week, the price differential means an additional $467 million in weekly fuel expenses.
Gasoline also jumped last week, climbing 4.9 cents to $2.872 a gallon, DOE said. Gas had gained 6.1 cents the prior week and last week’s price was 65.4 cents higher than it was a year ago.
Fuel prices are being driven higher by crude oil, which topped $96 a barrel for the first time on Nov. 1 in pre-market trading on the New York Mercantile Exchange.
Phil Flynn, a senior market analyst at Alaron Trading in Chicago, told Transport Topics the stage for diesel’s current rise was set in late May, when gasoline hit a record of $3.218.
Since that time, gasoline has fallen 34.6 cents, in large part because refineries shifted their output.
“A lot of it started earlier in the year, when refineries were focused on gasoline at the expense of distillate fuels,” said Flynn. Diesel is a distillate fuel, as is home heating oil.
Flynn said seasonal diesel demand rose in September and October — with farmers needing diesel for harvesting — and there were noticeably lower stockpiles of both diesel and crude oil compared with a year ago, as shown in DOE’s weekly inventory report that was released Oct. 31.
That report showed diesel supplies were down 6.1% — a “substantial number,” Flynn said — while crude stockpiles fell by 7.5%. Oil inventories were the lowest in two years, Bloomberg News reported.
Flynn also cited last year’s large-scale conversion to ultra-low-sulfur-diesel fuel as another factor in higher prices.
“ULSD regulations are also playing a part” in refineries’ output, he said. “The regulations are making it difficult for refiners to turn out as much diesel.”
Diesel averages topped $3 a gallon in all five of DOE’s regions last week. In the Gulf Coast, which generally has the lowest regional prices, the average jumped 6.8 cents to $3.062 a gallon.
“It’s definitely the highest we’ve seen since Katrina,” said Vernon Clark, owner of Rocking C Truck Lines in Gulfport, Miss., a truckload carrier with 30 vehicles.
Rocking C runs in most states east of the Rocky Mountains and tries to fuel its trucks at its own terminals, where it saves about 3 cents a gallon buying fuel in bulk, Clark said.
“When we get up north in New York and Massachusetts, where it is more expensive, we usually try to get just enough to get to Virginia, where it is usually cheaper,” he said.
And fuel suppliers “say the price is going to get higher,” Clark told TT. “Some shippers are screaming that other [carriers] are cheaper, but you know they won’t be in business long.”
One fuel retailer in Massachusetts said the lowest price in New England was $3.25 a gallon — DOE’s stated subregional price for the area — and tagged the high crude price as the main factor in the soaring costs.
“Crude’s being driven by a hundred different factors,” said Peter Ferraro, general manager of Flynn’s Truck Stop in Shrewsbury, Mass. “Truckers are definitely voicing their opinion, but they also understand it’s not our fault,” he said.
Heating oil was also close to record highs in the region, at $2.79 a gallon without the taxes that apply to on-road diesel, Ferraro said.
Because both diesel and heating oil are distillate fuels, they often compete for stocks when colder weather arrives, particularly in the Northeast, where most heating oil is consumed.
Nationally, heating oil futures set a record Oct. 31, touching $2.5218 a gallon, the highest since trading began in 1978, Bloomberg reported.

Diesel, Crude Oil Hit New Records

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