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Diesel Hits 14-Month High
Monday, 18 January 2010 00:00

8.2¢ Increase Pushes Average Price to $2.879.

The average price of a gallon of retail diesel fuel in the United States rose 8.2 cents a gallon last week to $2.879, the highest level in 14 months, according to the Department of Energy.

Diesel has risen for three straight weeks by a total of 15.3 cents a gallon, DOE said after its Jan. 11 survey of fueling stations. A year ago, fuel cost $2.314, and the last time diesel was higher was Nov. 10, 2008, when the average was $2.944.

Meanwhile, gasoline also rose for the third consecutive week, this time by 8.6 cents a gallon to $2.751. The last time the national average for regular gas was higher was in October 2008. A year ago, it cost $1.784.

The retail diesel increases, which started in late December, followed a surge in the price of crude oil on the New York Mercantile Exchange. Oil had soared 19.7% in less than 3½ weeks to $83.18 a barrel on Jan. 6, although since then, it fell back below $80, closing at $79.39 on Jan. 14.

The price increases are making fleet executives nervous.

“We’re all fearful of another price surge after the way we were slapped around a couple of years ago. You have to be more conscious and attentive,” Robert Ragan, senior vice president of finance for flatbed carrier Melton Truck Lines, Tulsa, Okla., said, referring to 2008 when fuel set a record of $4.764 a gallon.

“As a specialized, heavy-haul carrier, we have higher rates of empty miles than dry van fleets, so an increase hurts us more directly,” said Michael Card, president of Combined Transport, Central Point, Ore. “Diesel may not be as high as two years ago, but compared with three or four years ago, it’s very high, and we’re concerned.”

Card said his business plan assumes diesel will continue to increase in cost.

“I think that by the summer, it will jump because of some economic improvement. We’ve got auxiliary power units in 100% of our fleet, and I think that will prove to be a good decision,” Card said.

Melton’s Ragan said his company also uses APUs and pays bonuses to its most thrifty drivers.

“All of this helps to hold the bottom line, and shippers expect that of you,” he said.

Ragan said Melton’s sales staff keeps shippers informed of its efforts to control fuel costs.

“I don’t know if the customers really care about these actions, but I do know that if you don’t do them, they will care. They want to support and work with stable companies,” Ragan said.

Tom Kloza, chief oil analyst for the Oil Price Information Service, said he thinks trucking and other users of petroleum products will benefit soon from a switch in market dynamics. During the second half of January and throughout February, he said, oil and diesel prices should be set by supply, which is high, and demand, which should stay low. In contrast, Kloza said, financial and investment concerns whipsawed petroleum prices from mid-December through the first week in January.

“In late December and early January, billions of dollars get put into stocks and commodities as investment strategies change,” he said. “It’s a false start or a sugar rush.

“But I think that’s over now. Wholesale diesel prices are already back-tracking, and you’ll see prices on the street drifting lower during the second half of January and February, which are usually very poor months for petroleum demand,” Kloza said.

The U.S. Energy Information Administration issued its Short-Term Energy Outlook on Jan. 12 and predicted retail diesel would average $2.87 a gallon this quarter, and rise to $3.04 by the fourth quarter. In 2011, diesel will average $3.14, the report predicted.

First-quarter crude oil prices would average $77 a barrel on the spot market and rise to $81.33 in the fourth quarter, EIA said. Crude averaged $61.66 a barrel last year.

Transport Topics, 1/18/2010