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Home » Diesel prices fall another 4 cents a gallon; levels at near seven-year lows
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Diesel prices fall another 4 cents a gallon; levels at near seven-year lows

January 26, 2016
Mark B. Solomon
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Diesel fuel prices continued their downward spiral last night, with the average gallon of on-highway diesel priced at $2.07 a gallon, down 4 cents from the prior week, the Energy Information Administration, a unit of the Department of Energy, reported after commodity and financial markets closed.

The diesel price, which includes results from yesterday's downturn in oil—and by extension diesel fuel—prices, sits at its lowest level since early March 2009, according to EIA data. However, adjusted for inflation, diesel prices are at levels not seen since December 2002, according to IHS Economics, a consultancy.

EIA compiles its data, which it releases each Monday except for national holidays, from pump prices at 400 truck stops throughout the country. According to EIA data, all reporting regions posted week-over-week declines. Prices in the Gulf Coast region, where diesel prices are generally the lowest among all regions because of its close proximity to the gulf's refinery network, fell to $1.957 a gallon. Prices in the Midwest region fell to $1.987 a gallon.

In mid-2014, the average on-highway price of diesel stood at $4.02 a gallon.

The swift and violent drop in diesel prices has dramatically altered the dynamic of fuel surcharges, which were instituted years ago to enable carriers to offset sudden spikes in oil and fuel prices. Typically, fuel surcharges are based on the differential between the current weekly diesel prices and a contractually agreed-upon benchmark price, known as a "peg." The peg can vary, but it generally ranges from $1.15 a gallon to as high as $1.80 a gallon. If the price in the government's weekly figures is below the peg, no surcharge is applied. If the price is above the peg, a surcharge is imposed.

The surcharge is calculated by adding a penny for every five to seven cents per gallon that the government's weekly prices exceed the contract rate. That figure is then multiplied by the number of miles traveled to arrive at the per-mile price. For example, a shipper and carrier agree to a peg price of $1.20 a gallon. If weekly pump prices hit $4.00 a gallon and the interval of increase is set at 6 cents per gallon, the surcharge figure comes to a bit less than 47 cents a mile. The actual surcharge cost is determined by multiplying the 47-cents-a-mile figure by the mileage the truck logs.

However, at the current weekly price levels the surcharge, under the same scenario, would narrow to less than 14 cents per mile. This saves truck shippers, especially those consuming thousands of truck miles per year, millions of dollars in surcharge costs.

After gains last week, oil prices reversed course yesterday. A barrel of Brené North Sea crude fell 6.3 percent in London, trading at $30.15 a barrel. Diesel prices are pegged to Brené crude prices. West Texas Intermediate (WTI) oil prices dropped 7.1 percent, to $29.90 a barrel, in New York trading yesterday.

Transportation Trucking Truckload Less-than-Truckload
KEYWORDS IHS Markit Economics
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    On-highway diesel prices end year at lowest price point since 2004, EIA says

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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