Diesel Dips 3.4¢ to $2.946 a Gallon

This story appears in the June 14 print edition of Transport Topics.

Editor’s note: Click here for updated fuel prices for this week.

The U.S. retail diesel average dropped 3.4 cents to $2.946 a gallon last week, the fourth weekly decrease in a row that has lowered trucking’s main fuel by 18.1 cents a gallon, the Department of Energy reported.

A drop in the cost of crude oil was the main reason for diesel’s decline.

“Diesel has been dropping since the beginning of May, when it sold for nearly $3.13 a gallon, and the main reason has been the fall in the cost of crude oil,” John Felmy, chief economist of the American Petroleum Institute, told Transport Topics.

Crude oil closed June 8 at $71.99 a barrel on the New York Mercantile Exchange, well below its high for the year of $86.84 on April 6.

The retail price average of gasoline also fell for the fourth straight week, but by just 0.3 cent to $2.725 a gallon, DOE said after its June 7 survey of fueling stations. Gasoline has fallen 18 cents over the past four weeks.

Diesel, however, is still 44.8 cents more expensive last week than it was a year ago, while gasoline is just 10.1 cents a gallon more expensive than in the same week of 2009.

American Trucking Associations estimates that the U.S. trucking industry burns 725 million gallons of diesel fuel weekly, and 285 million gallons of gasoline. At those rates, truckers paid $324.8 million more for diesel last week than the same week in 2009 and $28.8 million more for gasoline.

A large fleet president said that all trucking companies benefited from the lower fuel prices, although many recoup some price increases with fuel surcharges.

“We, like everyone else, have fuel surcharges that are adjusted according to DOE figures each week, but this price drop is still a big deal for truckload carriers,” Michael Gerdin, president of Heartland Express Inc., North Liberty, Iowa, told TT.

“The reason is that fuel surcharges don’t pay for out-of-route miles, empty miles or idling miles, so that there is a certain amount of fuel use that we don’t get any assistance with on high prices,” he said. “It’s certainly going to help all truckload carriers.”

Heartland Express, which ranks No. 43 on the Transport Topics list of the 100 largest for-hire carriers in the United States and Canada, operates 2,850 company tractors, 150 owner-operated tractors and 8,500 trailers.

Another fleet executive said the drop in prices was not enough to change his company’s costs significantly.

“Any kind of fuel changes is going to affect your company, and it’s always better if fuel goes down,” Toby Kemp, owner of for-hire Rajor Trucking, Spring Hill, Tenn., told TT. “But with a change of just 18 cents, our fuel surcharges will take care of that.”

“We don’t have many deadhead miles or other ways where we’re running the trucks a lot without freight, so that as long as we change the surcharge weekly, swings like this one don’t affect us much.”

Kemp said that Rajor operates 90 trailers and 150 trailers nationwide, carrying general freight.

Energy Information Administration economist Neil Gamson said the decline in crude prices over the past month led the agency to cut its forecast of the average prices of both diesel and gasoline for the year.

EIA’s Short-Term Energy Outlook, issued June 8, said the on-highway retail diesel will average $2.96 a gallon this year, down from its May forecast of $3.05. Its diesel price forecast for 2011 also dropped by 9 cents to $3.11 a gallon.

EIA also dropped its forecast on diesel prices for the July-September summer “driving season” by 9 cents a gallon to $2.94 a gallon.

EIA’s forecast on gasoline prices fell from its May forecast, by 10 cents a gallon this year to $2.76 a gallon, and by 6 cents in 2011, to $2.92.

However, Gamson cautioned that the agency sees the current price of crude as only temporary, eventually rising.

“We do expect to see crude oil prices start to come up a little bit as the global economic situation improves,” he said.

EIA also offered its first estimates of reductions in crude production resulting from a six-month deepwater drilling moratorium that it said Interior Secretary Ken Salazar had announced on May 27. The moratorium was one government response to the Gulf of Mexico oil spill.

The reductions in crude oil production resulting from the moratorium will average about 26,000 barrels per day in the fourth quarter of 2010 and about 70,000 daily in 2011, EIA said in its outlook report.