Diesel Price Dips 1.2¢ to $2.622; Report Shows Ample Supplies

This story appears in the Sept. 28 print edition of Transport Topics.

U.S. retail fuel price averages continued their slow downward drifts last week, the Department of Energy said, as diesel dipped for the third consecutive time.

The averages declined even as crude oil prices rose early in the week before declining after a federal report showed ample supplies of diesel, gasoline and petroleum.

DOE said the diesel average was $2.622 a gallon on Sept. 21, a 1.2-cent decline from the previous week. The average has now fallen 5.2 cents in the three weeks since Aug. 31.

The agency also said the gasoline average slipped by 2.5 cents a gallon to $2.552 — its sixth straight weekly decline. Gasoline is now $1.166 lower than a year ago.

And although a gallon of diesel now costs 33.8% less than a year ago, when the national average was $3.958, fleet managers are still following pricing issues closely.

“It’s obviously less of an issue now than when it was $4 or $5 a gallon, but it’s still a significant cost of doing business,” said Murray Droescher, chief financial officer of refrigerated carrier TransAm Trucking, Olathe, Kan.

TransAm, a meat hauler out of the Midwest, has long used hedging on the futures and options markets, Droescher said, while the operations side has invested in a fuel-efficiency campaign. Auxiliary power units have been particularly useful, he said, and combined with other modifications have led to a “significant increase” in fuel economy. He declined to provide exact figures.

Crude oil on the New York Mercantile Exchange rose nearly $2 a barrel early last week, closing at $71.55 on Sept. 22. It reversed course, however, after DOE an-nounced that the U.S. stockpile of crude had increased despite a predicted decline, sending the price below $69 a barrel. On Sept. 24, oil closed at $65.91.

“These numbers are bearish across the board,” William O’Grady, chief market strategist at Confluence Investment Management, St. Louis, told Bloomberg News. “We’ve been in a $60-to-$75 range [for crude] since early July. Prices should go down to the bottom end of the range after these numbers,” O’Grady said.

U.S. crude oil supplies rose to 335.6 million barrels on Sept. 18, up from 332.8 million on Sept. 11, DOE said.

Ultra-low-sulfur distillate stocks, the basis of diesel fuel, rose to 100.4 million barrels from 99.1 million barrels over the same time, Energy said. There is now

a larger inventory of ultra-low-sulfur distillate than at any other time since January 2007, when diesel switched from low sulfur to ultra-low.

The gasoline inventory climbed to 213.1 million barrels from 207.7 million.

Before the government release, Droescher said he thought diesel prices, while low compared with the record levels of mid-2008, were still too high.

“Based on fundamentals, supply and demand does not support even the current prices,” he said.

The large inventory level should give diesel a cushion from sudden increases if there is a cold snap, now that the United States is entering home heating oil season, said analyst Andrew Reed of Energy Security Analysis Inc., Boston. Heating oil is chemically very similar to diesel, and in the winter, the two products compete with each other.

“If there is a warm winter, there could be a lot of downward pressure on diesel at the end of the winter,” he said.

Reed said he thinks the diesel inventory expanded to a high level because of the demand for gasoline during the summer. Refiners, he said, made the gasoline demanded out of one portion of crude and used much of the remainder to make diesel, irrespective of the demand for it.

“Gasoline margins made it profitable to keep churning out diesel. You can’t really balance both commodities at the same time,” Reed said, adding that no predictable event is on the horizon to suggest demand will surge soon.

“Global demand has not taken off yet,” he said. Truck tonnage, for instance, has shown small signs of improvement, but year-over-year tonnage declines are still in excess of 10% a month (click here for previous story).

While the current low, stable fuel prices are the result of a poor business environment, fleet managers were urged earlier this month not to just enjoy them passively. At a meeting of the Technology & Maintenance Council, several presenters urged maintenance managers to invest in technology and equipment to improve mileage ratings for tractor-trailers.

California remains under continuing pressure from the federal government to clean up its air, said Tony Brasil, an official with the California Air Resources Board. Brasil told members of TMC, a unit of American Trucking Associations, that CARB would try to limit greenhouse gas emissions such as carbon dioxide, by compelling truckers within the state to burn less fuel by improving mileage and operating newer trucks.

Other presentations examined low-rolling-resistance tires, aerodynamic fairings for tractors and trailers, and the probability that after the economy returns to growth, diesel will rise again past $3 and even $4 a gallon.