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October 1, 2007 7:45 AM, EDT

Diesel Tops $3 After Fourth Straight Increase

By Jonathan S. Reiskin, Associate News Editor
This story appears in the Oct. 1 print edition of Transport Topics.

The national average price of retail diesel cracked $3 for the first time in nearly 13 months with a 6.8-cent-a-gallon price hike last week, the fourth straight weekly increase reported by the Department of Energy.
Regular unleaded gasoline also rose by 2.5 cents a gallon to $2.812 but remained 12.6% below its high for the year, set in May. On the futures market in New York, crude oil and home heating oil contracts both backed away from record highs set Sept. 20.
The Energy Department said the average price of diesel was $3.032 on Sept. 24, up from $2.964 on Sept. 17. With the four weekly increases since Aug. 27, the average has risen by 16.9 cents a gallon, or 5.9%.
Coupled with a soft market for truck tonnage (see story, p. 5), the high cost of fuel has forced motor carrier executives to choose carefully when setting freight rates.
“Our fuel surcharges have mitigated the increase in fuel prices to a certain extent. However, the decrease in freight throughout the entire industry has put a great deal of pressure on the rates we charge, which affects fuel surcharges,” said Keith Davis, controller of KLLM Transport Services, a large refrigerated carrier based in Richland, Miss.
At truckload carrier Transport America, Chief Executive Officer Scott Arves said fuel surcharges remain the essential tactical coping mechanism for the short term and that his company is not involved in hedging. In the long run, though, his Eagan, Minn., company is looking toward technology.
“We’re trying to conserve and spec’ing our trucks for fuel efficiency. We’re looking at idle-reduction technology such as [auxiliary power units].
“We started about 1½ years ago, and now all of our new Freightliners will have APUs,” Arves said.
For the five months from April 2 through Labor Day, the fuel average was high but stable, at $2.835 a gallon plus-or-minus 6.5 cents. But after Aug. 27 it started to increase.
The last time the diesel average topped $3 a gallon was August 2006, when it went as high as $3.065 on the 14th of that month and remained above $3 through the 28th.
Diesel’s rise follows the substantial increase in crude oil prices this year.
Since Jan. 18, when crude oil contracts on the New York Mercantile Exchange closed at $50.48 a barrel, the price for crude has risen to a record closing price of $83.32 on Sept. 20, before falling to $79.53 a barrel on the 25th. In the following two days, prices started creeping up again, with Bloomberg News citing worries about a tropical storm in the Gulf of Mexico that could hit Mexico.
Heating oil contracts, often the basis for hedging diesel fuel, also set a record on the 20th, closing at $2.261 a gallon on NYMEX. By Sept. 26, the numbers had dropped to a closing price of $2.183.
Earlier that day, the Energy Department reported that distillate supplies, including diesel and home heating oil, increased by 1.53 million barrels in a week to 137 million barrels. A Bloomberg survey of analysts said they had been expecting a smaller increase.
Despite sluggishness within the U.S. economy, the global demand for petroleum is still relatively high, meaning diesel prices probably will not drop substantially anytime soon, said Brad Simons, president of the Pathway Network for U.S. truck stop supply at Simons Petroleum in Oklahoma City.
“The supply-and-demand equation is tight right now. Even with the weak economy, demand for distillates — diesel, heating oil and jet fuel — is fairly high domestically and stronger worldwide,” said Simons, who spoke from Coralville, Iowa, home of truckload carrier Heartland Express, after addressing the Iowa Motor Truck Association.
Trucking companies industrywide are paying about $453 million more for diesel each week than they were on Jan. 29, when fuel cost $2.413 a gallon. American Trucking Associations estimates the industry burns more than 730 million gallons of diesel a week.
On a regional basis, DOE re-ported diesel prices were highest in the Central Atlantic states at $3.124 a gallon, on average, and lowest in the Gulf Coast states at $2.971.