Analyst: These could be the "good old days" for diesel prices

By James A. Cooke -- Logistics Management, 4/1/2005

WALL, N.J.—A leading oil industry analyst foresees short-term relief on diesel fuel prices, but says shippers and truckers are in for some serious pain in mid-2006.

Tom Kloza, chief oil analyst at Oil Price Information Service in Wall, N.J., expects prices at the pump for diesel fuel will decline later this spring. But, he adds, those prices will soar to new heights next summer when the federal government introduces a new blend of cleaner-burning diesel to promote air quality.

Unlike other industry experts, Kloza does not foresee crude oil reaching $65 a barrel later this year. "One can make a strong case for $45 a barrel being a fair price for crude," he said. "It would not surprise me to see the next ten- dollar move be a price drop."

Meanwhile, he expects the average national price per gallon for diesel fuel to peak soon at $2.40. "We'll peak on diesel prices early in the second quarter," he said.

That may sound high now, but shippers and truckers may find themselves feeling nostalgic about that price by this time next year. Shippers should brace themselves for prices as high as $3 a gallon for diesel fuel when low-sulfur diesel debuts at the pump on September 1, 2006. As part of an initiative to curb emissions and improve air quality, the federal government is mandating that truckers use the new blend.

That fuel will have a sulfur content of 15 to 30 parts per million, down from the 500 parts per million found in today's diesel fuel. Environmentalists contend that low-sulfur fuel in combination with emission-reduction equipment will greatly decrease pollutants.

Kloza sees the introduction of low-sulfur diesel as having "budget busting" implications for both truckers and shippers. "We call low-sulfur diesel 'the ultimate LSD,' " he said. "It will be a bad trip for a number of people next year."