Diesel Slips for Fourth Straight Week

This story appears in the May 14 print edition of Transport Topics.

Retail diesel prices declined for a fourth week, with the national average dipping 1.6 cents to $4.057 a gallon, the Department of Energy reported, while crude oil futures fell to the lowest levels in three months.

Diesel has now fallen 9.1 cents over the past month, DOE said after its May 7 survey of fueling stations. Commercial trucking’s main fuel rose as high as $4.148 on April 9 and is currently 4.7 cents above year-ago levels.

At the same time, crude oil futures on the New York Mercantile Exchange closed at $97.08 a barrel on May 10, down from $106.16 on May 1.

With the exception of one day in February, crude last week was at its lowest level since Dec. 19, when it closed at $93.88.

“Diesel prices have fallen with the price of crude oil, but really not quite as much because there’s still some strength globally,” Neil Gamson,

an economist with DOE’s Energy Information Administration, said. “Over the past several days, crude oil prices have fallen a lot, and you’ll see within a few weeks some corresponding decreases at the pump.”

Crude inventories rose 3.7 million barrels last week to 379.5 million barrels, the highest level since 1990, according to DOE data.

The agency also reported that retail gasoline prices fell 4 cents to $3.790 a gallon last week, the fifth straight decline. Retail gasoline prices were 17.5 cents cheaper last week than a year ago.

Trucking executives said they welcomed the ongoing dip in fuel prices, but they would continue to look for even modest cost reduction ideas.

“We used to let our drivers take their trucks to their residences when they were near home,” said Buz Reusch, one of the owners of Rushco Services Inc., North Oxford, Mass. “But now we no longer allow that. Everything comes back to the terminal.”

Reusch said that Rushco, a small carrier that hauls heavy machinery and large vessels throughout the United States and Canada, monitors the routes drivers use.

“We keep a very close eye on their travels to make sure that we’re doing the most direct line travel there is for whatever we’re doing at the time,” Reusch said. “Also, drivers are instructed to buy their fuel at specific fuel stops that are within our network of cooperatives.”

The company also limits its trucks to 65 mph.

“Besides helping us keep drivers within the speed limits, it also does improve our fuel mileage,” Reusch said. “We’ve realized a significant savings on an annual basis as a result. We’re seeing between a quarter- and half-a-mile increase in miles per gallon.”

Jeff Jackson, vice president of freight services for Armellini Express Lines Inc., Palm City, Fla., said his company used to hedge fuel, but now considers it too risky.

Instead, Jackson said, Armellini — a refrigerated carrier that operates 120 tractors and 215 trailers — relies on fuel pricing packages with major truck-stop chains to keep its costs in check.

“When prices are running up, I get some limited protection,” Jackson said. “When prices are going down, I really like it because I’m paying cost-plus, which is considerably less than retail.”

“We’re somewhat limited in our ability to react because we’re a regular-route carrier,” Jackson said. “My lanes are fixed, and I have to buy fuel in my lanes.”

Meanwhile, in its latest short-term energy outlook, DOE reduced its projected prices of diesel and gasoline, citing the recent slide in crude prices.

DOE’s revised short-term diesel price for all of 2012 was $4.06 a gallon, 9 cents below last month. The average for 2013 is $4.03.

Gasoline will average $3.71 a gallon for 2012, DOE said, dropping a dime from its last forecast.

Crude oil, the main factor in retail end-fuel prices, will average $104 a barrel this year — $2 below last month’s forecast.

EIA’s Gamson noted that, although crude generally plays a key role in lower fuel prices, other factors at play include a “fairly adequate” supply and a slowing demand for diesel.

“But things can always change,” Gamson added. “Something that could push up the price could

be supply issues. Supplies can’t increase that quickly, but they can be cut off quickly due to weather, pipeline or geopolitical issues.”

Chris Barber, an oil market analyst with Energy Security Analysis Inc., also cited uneasiness in the equity and financial markets for the recent price slips.

“Most of it, at this point, appears to be related to slightly weaker fundamentals,” Barber said. “We had a disappointing jobs report

. . . which seemed to have been a big impetus in a lot of this.”

He added that traders are cautious over the ongoing possibility of Iran cutting off oil supplies.

“I think investors are . . . uncertain right now. At least for the near term, it’s going to stay that way unless there’s a string of more positive news cycles or statistics,” he said.