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April 16, 2007 7:45 AM, EDT

Diesel Gains 5¢ to $2.84 a Gallon

Refinery Woes Push Prices to 7-Month High

By Frederick Kiel, Staff Reporter

This story appears in the April 16 print edition of Transport Topics. Click here to subscribe today.
The average price of U.S. retail diesel fuel climbed another 5 cents last week to $2.84 a gallon, reaching a seven-month high, and the Department of Energy warned that prices are unlikely to fall anytime soon.
Since Jan. 29, diesel has risen a total of 42.7 cents and is at its highest since last Sept. 11. It is 18.6 cents higher than a year ago, DOE said.
“Refineries in many parts of the country have experienced un-planned shutdowns for mechanical reasons, especially those refining gasoline. It has caused a right tight supply-and-demand situation,” Douglas MacIntyre, an analyst at the DOE’s Energy Information Administration, told Transport Topics.
Refineries in Texas, California, Pennsylvania, Colorado, Ontario and Delaware have had to trim output over the past two months, Bloomberg News reported.
MacIntyre also said although crude oil prices have fallen since Iran released 15 captured British sailors and marines, “the prices at the pump have not yet factored in that crude decrease.”
DOE last week projected that retail diesel would average $2.82 a gallon through the summer, nearly unchanged from its current level.
For the year, DOE projected diesel would average $2.75, 14 cents higher than its March forecast and its highest-ever full-year projection.
“In previous years, fuel prices had widely fluctuating peaks and valleys,” MacIntyre said. For 2007, “we see prices remaining consistently high for the year in the $2.60 to $2.80 range, though probably not going over $3 a gallon,” he said.
Also last week, the retail gasoline average increased 9.5 cents to $2.802 a gallon. Gasoline now has risen 10 straight weeks by 63.7 cents, from its Jan. 29 price of $2.165 a gallon.
Truckers paid an estimated $311 million more for diesel last week than they did 10 weeks earlier and $178 million more for their gasoline. American Trucking Associations’ data show that truckers use about 730 million gallons of diesel a week and 280 million gallons of gasoline.
Like diesel, DOE said gasoline would remain high through the rest of the year, averaging a record $2.62 a gallon.
Based on those projections, ATA economist Tavio Headly said trucking would spend $106 billion for diesel this year and $38 billion for gasoline.
“The only way we deal with rising fuel prices is putting fuel surcharges into contracts and hoping a third-party company doesn’t underbid us,” Orville White, vice president of Sentinel Transportation LLC, Wilmington, Del., told TT. Sentinel’s 450 trucks haul hazardous freight, such as crude oil, gasoline, diesel, jet fuel and chemicals.
“We tried putting in fuel tanks at our depots when diesel started rising in 2005, but that didn’t work,” White said.
“Because of the costs of meeting environmental laws, bulk storage didn’t cut fuel expenses, and we took out the tanks at all 47 of our centers, except for four located too far away from a commercial fuel stop,” he said.
Noel Rush, vice president of operations for R.J. Corman Railroad Group, Nicholasville, Ky., said the company saved on retail prices by buying “our fuel in bulk, not only for our trucks, but also for our 68 diesel locomotives.”
R.J. Corman runs 500 heavy- and light-duty trucks, as well as seven short-line railroads.
“We also cut idling time on all our vehicles and give them maintenance more often to cut truck fuel use,” Rush said.
Meanwhile, the price of crude oil on the New York Mercantile Exchange remained near $62 a barrel late last week, about $4 below its highs as political tensions between Iran and England escalated last month.
Prices are down 10% from a year ago, but traders expressed nervousness after DOE said April 11 gasoline stockpiles plunged 5.5 million barrels to 199.7 million barrels in the latest week. That was the ninth straight decline and the biggest one-week drop since Aug. 22, 2003, Bloomberg reported.
Gasoline supplies have fallen 12%  over those nine weeks.