No end in sight for high fuel prices

By Staff -- Logistics Management, 4/1/2000

In a normal year, the end of the heating season would signal an easing of diesel fuel prices. Heating oil and diesel fuel are nearly identical petroleum products, and a drop in demand for one should result in lower prices for the other.

This, however, is not a normal year.

Diesel fuel prices continue to hover near record levels, averaging almost $1.50 nationwide at the end of March. Those prices, some 50 percent higher than they were a year earlier, stem from a rise in oil costs. Crude-oil prices have been driven up by a drop in production by the Organization of the Petroleum Exporting Countries (OPEC) and a worldwide increase in demand. Crude-oil prices in early March hit $34 a barrel. A year earlier, it was selling for $12 a barrel. That equates to an additional 48 cents a gallon.

Relief from those high prices and the strain they have placed on motor carriers does not seem to be close at hand, at least not while demand for oil products continues to outstrip supply. According to the Energy Information Administration (EIA), world demand exceeded supply by more than one million barrels a day in 1999. Without an increase in supply, the shortfall could reach two million barrels a day this year, the agency predicts.

OPEC ministers, meeting late last month, approved an increase in production of just over 6 percent. Although that will be an improvement, it may not make a significant difference in pricing or be enough to address the worldwide decline in petroleum inventories.

The rise in fuel prices prompted a variety of political reactions. Twice, independent truckers held demonstrations in Washington demanding action to bring down diesel prices. Some members of Congress urged a temporary repeal of a 4.3-cents-per-gallon tax on fuel. That proposal was opposed by key members of the House Committee on Transportation and Infrastructure, who argued that such a step would not reduce prices or help correct the fuel-supply problem but would hurt highway, transit, and aviation construction programs.

The American Trucking Associations (ATA), meanwhile, called for emergency government action. In late February, Walter B. McCormick, ATA's president and CEO, told the Senate Committee on Energy and Natural Resources that the high fuel prices threatened already narrow margins in the trucking industry. He called for the federal government to release stocks from the nation's strategic petroleum reserve, for the government to pressure OPEC to boost production, and for the U.S. Attorney General to investigate any illegal price gouging. Last month, he called on President Clinton to convene an emergency conference on oil pricing and supply that would devise a national strategy to halt the price increases.