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January 5, 2009 1:45 AM, EST

Diesel Price Declines to $2.327

Level is Lowest Since June 2005

By Frederick Kiel, Staff Reporter

This story appears in the Jan. 5 print edition of Transport Topics.

The U.S. diesel average fell a combined 9.5 cents over the final two weeks of 2008 to $2.327 a gallon, ending the year at its lowest level since June 2005, the Department of Energy reported.

Diesel dropped 3.9 cents a gallon in DOE’s Dec. 29 weekly survey of fueling stations, after falling 5.6 cents during the week ended Dec. 22. Overall, commercial trucking’s main fuel has fallen 13 consecutive weeks and is $1.018 below a year ago, data from the department’s Energy Information Administration showed.

DOE also said the average price of regular gasoline declined by 4.6 cents a gallon over two weeks to $1.613. Gas dropped 0.6 cent on Dec. 22 and another 4 cents on Dec. 29 — the eighth and ninth straight weekly declines — leaving it at its lowest price since Jan. 19, 2004.

Gasoline is down $1.44 from the same week a year earlier.

“The fuel market has made a further adjustment to market realities over the last two weeks that everyone has to face up to,” Phil Flynn, energy analyst at Alaron Research in Chicago, told Transport Topics.

“What we’re seeing is the price of diesel and gasoline basically reacting to the slowing global economy. They had reached record high prices based on unreasonable expectations that demand for the fuel would survive, despite the fact that prices were driven up so high by the weak dollar,” Flynn said.

The diesel average reached a record $4.764 a gallon on July 14, while gasoline peaked at $4.114 on July 7.

Financial panic and the subsequent credit freeze hit the United States in September and then spread worldwide, slowing economies and drastically reducing fuel demand.

American Trucking Associations estimates that U.S. trucking burns 752 million gallons of diesel fuel weekly and 285 million gallons of gasoline. Based on those figures, truckers paid about $1.75 billion for diesel and $460 million for gasoline last week, well below the $3.6 billion for diesel and $1.8 billion for gasoline when the two fuels hit their respective peaks.

Despite the lower pump prices, Pete Montano, vice president of sales for Con-way Truckload, said the company plans to stick with adjustments it made last year when prices were reaching new records almost every week.

“The two main changes we undertook when diesel was spiking upward was to convert 100% of our tractor fleet to the Michelin X-1 Super Single tire — which . . . cuts about two-tenths of a mile per gallon in fuel use — and lowering our [engine speed] governors from 70 to 65 miles per hour,” Montano told TT. “Those two measures were both pretty successful in cutting our fuel usage, and since we think this drop in diesel prices is temporary, we’re keeping both policies in place.”

Con-way Truckload is a division of Con-way Inc., which ranks No. 6 on the TT 100 list of top for-hire carriers. It runs about 2,800 of its own tractors and works with 200 owner-operators.

“We obviously have been helped when fuel comes down — with most fuel surcharges based on prices a week or a month previously,” Montano said. “But we got killed when it spiked up very fast week-to-week and we were not able to recover our full costs.”

In an unusual turn of events, the cheapest diesel price in the United States last week was in California, where the average was $2.241 a gallon. California’s price is usually higher than the national average.

Paying the most for fuel were the New England and mid-Atlantic subregions of the East Coast, at $2.638 and $2.536, respectively. During the winter months, more heating oil is needed in these areas, lowering the number of distillate stocks available for diesel.

Meanwhile, the price of crude oil on the New York Mercantile Exchange briefly rose back above $40 a barrel on Dec. 29 as renewed fighting between Israel and the Palestinian group Hamas raised concerns about production disruptions, Bloomberg News reported. But continued weak demand and rising U.S. inventories in recent weeks were overshadowing concerns about the Middle East, preventing more significant price spikes as the year drew to a close.

Oil last week was trading down more than $100 a barrel below the record high in the summer.