The federal government today lowered its forecast of average crude oil prices for 2015 and 2016, sending oil futures prices sharply lower and reducing truckers' costs even further than was projected as recently as last month.
The Department of Energy's Energy Information Administration (EIA) forecast that prices for West Texas Intermediate (WTI) crude would average $49 a barrel for 2015 and $54 a barrel in 2016, declines of $6 and $8 a barrel, respectively, over its most recent forecast in July. The agency issues a short-term energy outlook each month. The average fuel surcharge (FSC) for the spot market is just under 30 cents per mile right now. Last year, when when diesel was around $3.90, the FSC was just above 50 cents.
Prices for North Sea Brené crude, which are traded in London, have traded about $5 a barrel higher than WTI for most of 2015, EIA said. The spread is expected to persist at least through next year, the agency predicted. Retail gasoline and diesel prices tend to follow Brené prices. Labor and fuel costs are a trucker's two largest expenses. The U.S. trucking industry consumes a little more than 30 billion gallons of diesel per year, according to estimates from consultancy FTR.
The EIA's updated forecast had a negative impact on today's energy prices. As of midafternoon, WTI was quoted at $40.60 a barrel, down more than $2 a barrel from yesterday's close. Brené crude closed at $46.98 a barrel, down about $2 a barrel from yesterday's close.
Concerns over the pace of economic growth in emerging markets, continuing supply growth, increases in global liquids inventories, and the possibility of increasing volumes of Iranian crude oil entering the market contributed to the changed forecast, EIA said in a statement on its web site. It added that the pace of supply increases has slowed recently.
According to EIA's weekly forecast of pump prices, the average price of a gallon of on-highway diesel was quoted at $2.615 cents as of Monday. That's down $1.22 a gallon from the same period a year ago, according to agency data. Prices along the Gulf Coast were the lowest among the 10 areas of the country surveyed, coming in at $2.47 a gallon, a year-over-year drop of more than $1.26 a gallon. The highest prices were in California at $2.945 a gallon, a year-over-year drop of $1.14 a gallon.
The decline in diesel prices has lagged the drop in retail gasoline prices for a good portion of 2015.
Sean Hill, an economist at EIA, predicted that, by year's end, average nationwide diesel prices will drop to levels $1 a gallon below the fourth-quarter 2014 national average of $3.30 a gallon. Hill said domestic and international inventories of diesel would remain ample as refiners ramp up production to capture all the crude oil supplies on the market and to satisfy continued strong demand for gasoline. The expansion of diesel inventories is a departure from recent years, when diesel was in high demand and the market was considerably tighter, Hill said.
Hill said in an e-mail that the diesel market is heading into its seasonal winter peak, when the product is used for transportation and heating oil, "with a combination of very plentiful diesel supplies as well as pretty weak crude oil prices."
EIA divides East Coast prices into three sub-regions: New England, the Central Atlantic, and the Lower Atlantic. It also calculates prices for diesel purchased along the West Coast besides California, and includes a separate category just for costs in California.