Diesel Drops 5.2¢ to $2.781 in 3rd Straight Weekly Decline

This story appears in the Feb. 8 print edition of Transport Topics.

The U.S. retail diesel average dropped 5.2 cents to $2.781 a gallon last week, the third straight weekly drop, the Department of Energy reported.

The three-week price slide totaling 9.8 cents followed a climb that had taken diesel to $2.879 a gallon, its highest level since November 2008, DOE said Feb. 1 after its survey of fueling stations.

The agency also reported that the average gasoline price dropped for the third week, falling by 4.4 cents a gallon to $2.66.

Despite the declines, diesel is 53.5 cents higher than a year earlier while gasoline is 76.9 higher, DOE said.

Diesel is linked to the price of crude oil and “in the last couple weeks it’s actually been down quite a bit,” said Chris Barber, an oil market analyst at Energy Security Analysis Inc. in Wakefield, Mass.

Crude, which reached a 15-month high of $83.18 a barrel on Jan. 6, closed on the New York Mercantile Exchange Feb. 4 at $73.14 — a $3.84 plunge from the previous day and the biggest drop since July 29, Bloomberg News reported.

Lower fuel prices were welcomed at trucking firms in some of the regions of the country.

“A little light at the end of the tunnel,” said William Hartt, president of Hartt Transportation Systems Inc. of Bangor, Maine, which hauls for paper mills and Poland Springs, the water company.

Winter fuel costs can easily erode profits because frigid temperatures often mean that truck engines must burn diesel just to keep the fuel from freezing.

“If it’s basically going to get below freezing for a day or two,” said Hartt’s full-time fuel analyst Ben Opperman, drivers “have to get out there and start their engines.”

Since October when it adopted a fuel optimizer program, Hartt has been tracking diesel prices daily, trip-by-trip.

Before then, Opperman said, he used to give each driver a book of truck-stop fuel prices that he had compiled based on six-month price averages.

“But now [prices are tracked] on a daily basis,” he said. A driver “knows this exact stop is the cheapest fuel . . . for the trip he is doing.”

It is too early to know how much the optimizer is saving in fuel costs, Opperman said, but that is not the only thing the firm has done in his three years there to save fuel costs.

Hartt has put governors on its more than 400 tractors, is using single-wide tires to cut down on resistance and has auxiliary power units to cut down on idling time.

Like Hartt, Decker Truck Line Inc. in Fort Dodge, Iowa, has a similar rule about running truck engines in frigid temperatures.

“At 10 degrees, we’re leaving it to driver discretion, at zero degrees, it’s mandatory,” said Steve Lursen, who manages fuel for Decker.

Decker, which runs about 550 tractors, focuses on “operational efficiency,” Lursen said, such as increasing miles per gallon and decreasing deadhead miles.

“One thing I do stress is we make heavy use of terminal fuel,” Lursen said, adding that Decker has put terminals along some of its main hauling routes.

Meanwhile, oil analyst Andrew Reed, also from ESAI, expects to see additional price drops for diesel because stocks are at record highs.

“Even independent of the economy,” Reed said, “there’s just such a vast amount of distillate in the U.S. inventories, in European inventories and in floating storage that even with cold snaps in all the main markets, the inventories aren’t going to be drawn down.”

Both diesel and heating oil come from distillate. According to figures from DOE’s Energy Information Administration, U.S. stockpiles of trucking’s main fuel, ultra-low-sulfur diesel, are at all-time highs.

EIA reported that as of Jan. 22, there were 100.1 million barrels of the fuel on hand, compared with 84.8 million barrels in stock at the end of January 2009.

However, Tancred Lidderdale, a senior economist at EIA, cautioned against linking diesel prices and stockpiles.

Diesel prices are no longer linked to demand as much as they are to crude oil prices, Lidderdale said.

He said that after the record-setting diesel prices of July 2008, diesel and crude prices have precisely paralleled one another.

The recent drop in crude, he said, “was attributed to a number of things, the very cold weather at the end of December and the beginning of January . . . concerns about economic activity in China and expected oil demand there.”