Diesel, Gasoline Prices Decline as Refinery Woes Ease, Oil Dips

This story appears in the Oct. 29 print edition of Transport Topics.

U.S. retail diesel prices declined 3.4 cents to $4.116 a gallon last week, dipping after reaching the highest levels in more than four years a week earlier, the Department of Energy reported.

Trucking’s main fuel has held above the $4 mark for 10 straight weeks, although it has declined in three of the past five weeks. The previous week’s average price of $4.15 was the highest since August 2008.

Despite last week’s decrease, diesel remains 29.1 cents higher than a year ago, DOE said after its Oct. 22 survey of fueling stations.

The agency also said the regular gasoline average price plummeted 13.2 cents to $3.687 per gallon. DOE records show it was gasoline’s biggest single-week drop since November 2008, when it fell 18 cents.

Gasoline prices have declined in four of the past five weeks and are at the lowest point since Aug. 6. The average is 22.5 cents above its price a year ago.

Phil Flynn, an analyst at Price Futures Group Inc., Chicago, said a series of refinery and pipeline problems, including an August fire at a Chevron refinery in Richmond, Calif., had “conspired” to raise fuel prices.

Now those disruptions are fading at the same time that crude oil prices are falling.

“We’re getting this double bonus. We’ve got the refineries that were down coming back on line, and we’ve got lower oil prices, and that’s having a major impact,” Flynn said.

In the four trading days between Oct. 18 and Oct. 24, the price of crude oil on the New York Mercantile Exchange fell $6.37 a barrel to $85.73, the lowest closing price since July 10. On Oct. 25, crude edged up to $86.05 per barrel.

Timothy Hess, an analyst for DOE’s Energy Information Administration, said diesel did not fall as much as gasoline because the fuel is competing with the heating market, especially in the Northeast. Diesel and heating oil are both produced from the distillates portion of the crude oil barrel.

Flynn said there’s more political pressure on refiners to build up gasoline supplies than diesel.

Normally at this time of year, refiners would have been more focused on diesel, Flynn said, but “Because of all the issues with gasoline, refiners were still focused on producing as much gasoline as they could to fill that void, and I think it came at the expense of diesel.”

In recent third-quarter earnings reports, fleets said their results were hurt by a “fuel-surcharge lag,” which occurs when prices rise strongly over a prolonged period and the previously established surcharges do not cover new and higher prices for fuel.

Swift Transportation Co., Phoenix, said an increase in its net fuel expense — to $56.7 million in the third quarter from $55.2 million a year earlier — was driven by the lag in fuel recovery as prices rose more than 40 cents a gallon during the quarter, the company said.

Swift said this delay reduced its earnings per share by about 3.5 cents to 4 cents on a year-over-year basis.

However, Swift said the surcharge lag was “mostly offset” by a reduction in fuel consumption generated by a 4.1% decline in miles driven and improved fuel efficiency.

Werner Enterprises, Omaha, Neb., noted in its earnings report that DOE’s national average fuel price increased for 11 consecutive weeks during the third quarter.

The surcharge lag that resulted from the steady increase caused the company’s net fuel expense to rise, Werner said.

Operating profits for UPS Inc.’s domestic parcel operations were “down slightly compared to last year as the quarter was negatively impacted by $60 million in fuel-surcharge lag,” Chief Financial Officer Kurt Kuehn said in the company’s Oct. 23 earnings call.

Overall, the company spent $969 million on fuel, or 4.5% less than last year’s third quarter, when the fuel expense was more than $1 billion.

Associate News Editor Jonathan S. Reiskin contributed to this story.