Government measure of diesel fuel prices ends year higher than it started

The federal government's weekly measure of U.S. on-highway diesel fuel prices ended 2016 decisively higher than where it had begun, after a year of pronounced price volatility that saw prices dip below $2 a gallon for the first time since early 2005.

The national average for on-highway diesel was reported late today at $2.54 a gallon, up about 1 cent a gallon from the prior week and continuing a surge that has seen prices rise about a dime a gallon since the week after Election Day, according to data published by the U.S. Energy Information Administration (EIA), a section of the Department of Energy.

Prices ranged from $2.42 a gallon along the Gulf Coast, where prices are normally cheapest given the region's close proximity to the nation's refining network, to $2.87 a gallon in California, where prices are generally the highest because of elevated business costs.

At the start of 2016, the average price stood at $2.21 a gallon. By mid-February, it had fallen to as low as $1.98 a gallon. The average weekly price climbed above $2 a gallon in early March, and never looked back. The price rose above $2.40 a gallon in early June and remained in a tight range until late in the year, when it broke out anew to the upside.

Diesel prices entered 2016 in a pronounced decline since mid-2014 as a surge in U.S. shale oil production and robust output from Saudi Arabia flooded the market with product. However, the multi-year lows ended up driving many over-leveraged U.S. "fracking" companies out of business, curbing a key source of supply. Then in late 2016, members of the Organization of the Exporting Countries (OPEC) agreed on production curbs, a move that led to a spike in prices.

Depending on prevailing price levels, diesel fuel is either the most or second-most expensive cost item for truckers, alternating with labor. Truckers pass on higher fuel costs to shippers in the form of surcharges, which can become a major cost headache for shippers when prices are high.

U.S. diesel prices are largely based on daily market moves in the price of North Sea Brené crude oil, the price of which has climbed steadily since the spring. The national on-highway price is calculated from a weekly survey of 400 truck stops and service centers.

Diesel prices would average $2.70 a gallon in 2017, EIA forecast earlier this month. Diesel prices will end up averaging $2.31 a gallon during 2016, according to EIA data.