Editorial: Warily Watching Diesel Fuel Prices

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leets are breathing a collective sigh of relief now that diesel prices have finally fallen back to the level they had been before Hurricane Katrina roared through the Gulf Coast.

That late-August storm damaged a substantial portion of the U.S. oil production infrastructure and sent prices on a staggering spike into levels never before seen, with the national average for retail diesel hitting $3.157 a gallon in the Oct. 24 survey by the Department of Energy.

While prices now have fallen 64.4 cents a gallon during the past four weeks — to an average of $2.513, the lowest since Aug. 4 — we’re certainly not out of the woods.

Already, analysts are warning that the future of diesel prices will be largely dependent in the coming months on the thermometer. If we have a cold winter, refiners can be expected to divert more distillate to home heating oil, which will surely mean a shortage of diesel for trucks, and that would ensure markedly higher costs, they say.

And already last week, published reports predicted the winter temperature in the Northeast, where most home heating fuel is consumed, would be well below normal through the Thanksgiving holiday weekend.

Last week’s predictions of colder weather sent crude oil prices up 4%, after weeks of steady declines as the oil industry recovered from Katrina’s wrath.

The Center for Global Energy Studies last week warned that the U.S. petroleum industry still had not fully repaired hurricane damage, leaving diesel supplies vulnerable to shortages and sharply higher prices if demand for home heating oil rises sharply.

Despite the recent declines, diesel is still just under 40 cents a gallon higher than it was in the comparable week of 2004, meaning that the nation’s fleets spent some $265 million more for its primary fuel last week than it did a year ago.

Meanwhile, two publicly held fleets reported last week that they had actually managed to more than cover their additional fuel costs.

Arkansas Best Corp. and CNF Inc. said that during the third quarter they were able to cover their costs and add to their bottom lines through fuel surcharges.

But some shippers are already raising questions about surcharges and are calling for changes that could reduce their effectiveness for fleets.

The fact is that previous studies have shown most fleets never recover all of their added costs through surcharges. Miles driven without loads don’t earn surcharges, and the gap in time between the rise in prices and the collection of surcharges is an uncovered cost.

This editorial appears in the Nov. 28 print edition of Transport Topics. Subscribe today.