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Home » Diesel prices hit 17-month high
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Diesel prices hit 17-month high

April 7, 2010
Mark B. Solomon
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For the first time since November 2008, diesel fuel prices have climbed above $3.00 a gallon.

According to the Energy Information Administration (EIA), the average price of diesel fuel for the weekly period ending April 5 was $3.015 a gallon, a jump of about 7 cents a gallon from the previous reporting week. In four of the six regions canvassed by the EIA, four reported diesel prices above the national average.

The last time diesel prices were above $3.00 was the reporting week ending Nov. 3, 2008, according to EIA data. Diesel prices hit an all-time high of $4.76 a gallon in July 2008, only to plunge to $2.02 by mid-March 2009 as the global recession took its toll on demand across the board.

According to the American Trucking Associations, the nation's leading trucking trade group, each 1 cent increase in the price of diesel costs the industry an additional $340 million a year.

Diesel prices also seem to have a direct correlation to trucking failures. When prices were soaring in the first half of 2008, there were 1,905 reported failures of trucking companies with a fleet of at least five vehicles, according to data from research firm Avondale Partners. In the first half of 2009, with diesel prices plunging, there were only 850 trucking company failures reported, according to Avondale data.

The industry, for its part, blames much of the oil price rise on excessive speculation by traders in the commodity markets. A group calling itself the Derivatives Reform Alliance has urged Congress to give the Commodity Futures Trading Commission the power to eliminate loopholes that encourage excessive speculation that artificially drives up commodity prices.

The group said in February that oil prices had nearly doubled during the past year despite crude oil inventories' being well above average, global oil demand's remaining weak, and the value of the dollar—whose weakness relative to other major currencies was seen as a key factor in the 2008 oil price run-up—declining only 8 percent against the euro.

"In the face of these market realities, excessive speculation is the only other variable left unaccounted for," Randy Mullett, vice president of Con-way Inc. and the trucking industry's representative in the Alliance, said at a press conference in Washington.

In the first quarter of 2010, on average, daily world oil supply exceeded consumption by about 290,000 barrels, according to EIA data.

Others say the recent rise in oil prices has more to do with the traditional law of supply and demand than with the influence of speculators. Writing in the January/February issue of Foreign Policy, Steven Kopits, who manages the New York office of energy consultancy Douglas-Westwood, said a recovering global economy would cause demand for oil to increase from the 85 million barrels of daily consumption reported in November 2009. The EIA said 85 million barrels remained the average daily consumption threshold during the first quarter of 2010.

As a result of growing demand, Kopits wrote, both onshore and offshore inventories have begun to decline. He noted that the number of tankers storing crude in the Gulf of Mexico fell to seven in November from 22 at the recession's trough in May 2009.

Kopits said the Organization of Petroleum Exporting Countries (OPEC) will try to respond during 2010 by increasing supplies. However, OPEC's production efforts, which usually involve a time lag, will come too late to drive down prices this year, especially amid accelerating consumption from developing countries.

Chuck Taylor, a leading expert on energy issues and their impact on the supply chain, said the price increase is due to rising demand's quickly absorbing spare capacity, whose levels were probably overstated to begin with.

Taylor advised interested parties to first examine the fundamentals driving the rise in oil prices before blaming others for trends that have been in place for at least five years.

Transportation Supply Chain Services
KEYWORDS Con-way
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Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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