January 21, 2008 7:45 AM, EST

Diesel, Gas Dip As Petroleum Prices Retreat

By Michael G. Malloy, Staff Reporter
This story appears in the Jan. 21 print edition of Transport Topics.
U.S. retail fuel prices dipped last week, as crude oil costs fell. The Department of Energy said the average price for diesel around the nation was 5 cents a gallon lower at $3.326, while gas slipped 4.1 cents to $3.068.
“Diesel dropped because $100 a barrel [for crude oil] was too high — an unjustifiable price — and because there is also a slowdown in the U.S economy,” said Tom Kloza, chief analyst for the Oil Price Information Service. He predicted prices would continue to fall for the same reasons.
Crude oil, which reached $100 a barrel for the first time late last month, was trading near $90 last week in New York.
“You are going to see a drift down of retail diesel prices in the next three to six weeks,” said Kloza, noting a traditional demand drop in January and February combined with higher prices.
Despite the price dip last week in DOE’s Jan. 14 survey of filling stations, diesel remained 86.3 cents a gallon higher than it was a year earlier, while gasoline was 83.9 cents higher than the corresponding week in 2007.
One freight broker said last week that high fuel prices could force many smaller carriers out of business, similar to what happened in the early part of the decade.
“We’ve reached a point where fuel demand is still growing and there is an overcapacity with shipments,” said Jeffrey Tucker, chief executive officer of the Tucker Co., based in Cherry Hill, N.J.
“When fuel prices went up in 2000 and 2001, we lost about 11,000 motor carriers,” Tucker said. “Now, we have a more unstable economy, with automotive and housing woes. . . . I fully expect that if we don’t start to see stabilization between capacity and demand . . . we are going to be losing thousands more motor carriers.”
Even if the average diesel price moderates in coming weeks, it will still likely remain at historically high levels due to strong demand from China and India, Kloza said.
The recent decline in oil prices is “not ending the era of high oil, just an area where we’re getting some relief” from the record prices, he added.
“To a truckload carrier, fuel is an enormous percentage of its pricing structure, so if 30% of its cost is wrapped up in fuel, they are having a hard time passing that on,” Tucker said. “That makes for staggering economics, especially for smaller carriers.”
Meanwhile, oil prices fell sharply last week, just two weeks after topping $100 a barrel for the first time. Per-barrel futures fell Jan. 16 to below $90 on the New York Mercantile Exchange for the first time since late December, closing at $90.84, Bloomberg News reported.
DOE reported the same day that crude oil inventories rose for the previous week for the first time in nine weeks, as did distillate and gasoline stockpiles.
President Bush on Jan. 15 urged OPEC nations to put more oil on the world market, while warning that soaring prices could cause an economic slowdown in the United States, Bloomberg reported.
OPEC’s secretary-general signaled the cartel may consider boosting output if the market warrants it. OPEC is scheduled to meet Feb. 1.

Diesel, Gas Dip As Petroleum Prices Retreat

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