Diesel prices are down for first time in four weeks
August 02, 2011
Following a cumulative 9.9 cent gain over the previous three weeks, the Department of Energy’s Energy Information Administration (EIA) reported this week that the price per gallon of diesel dropped 1.2 cents to $3.937.
This decrease followed weekly gains of 2.6 cents, 2.4 cents, and 2.9 cents, respectively. Prior to those recent increases diesel prices had fallen a cumulative 27.4 cents since hitting a 2011 high of $4.124 per gallon the week of May 2. And this week’s price per gallon is cumulatively 18.7 cents less since the week of May 2.
Compared to a year ago, diesel prices are up $1.09. In its short-term energy outlook, the EIA is calling for diesel prices to average $3.86 per gallon in 2011 and $3.95 in 2012, with oil pegged at $98.43 per barrel in 2011 and $102.50 in 2012.
The price per barrel of oil is currently trading at about $94 on the New York Mercantile Exchange, according to media reports. The Associated Press reported that the price per barrel is down due to softness in the U.S. economy brought on by the nation’s debt ceiling issues and sluggish growth, as evidenced by yesterday’s manufacturing report by the Institute for Supply Management.
As LM has reported, given the fluctuation—and still high prices—of diesel, shippers and carriers remain concerned about the price of diesel and oil. While many have indicated that prices at current levels are still digestible, they cautioned that could quickly change depending on how quickly prices rise.
And with this fluctuation, the focus from a supply chain perspective for managing fuel price ebbs and flows—for shippers—is more on utilization and efficiency by doing things like driving empty miles out of transportation networks.
Even with this week’s increase, the price per gallon for diesel fuel has not exceeded the $4 mark since the week of May 16, when it hit $4.061.
But Chuck Taylor a noted oil and diesel expert, who runs a Texas-based consulting firm called Awake!, told LM not to read too deeply into that, stating that the third and fourth quarters will see a return to $4 or higher gallons.
There are several reasons for this, explained Taylor.
“The slight-of-hand release of 60 million barrels (about 17 hours of world consumption) from Strategic Reserves (30 from ours) has already played out,” he said. “The Energy Information Agency’s July 2011 forecast shows a total world consumption of oil of 89.0 million barrels a day for Q3 2011 and 88.8 million barrels a day for Q4 2011. World supplies are about 87 million barrels per day. The estimate of spare capacity is 2-3 million barrels a day all in Saudi Arabia, Kuwait or the UAE (mostly in SA).”
Taylor went on to say that the Saudi’s couldn’t or didn’t increase production in the spring when the run up began, and they still won’t or can’t, adding that the release of the strategic reserves was a bullish signal for prices once the knee jerk sell off was over.
“I think the release was a cynical and not very effective ploy,” said Taylor. “If somehow Libya comes back on line soon or the world economies slow enough, prices would stabilize or possibly drop some, and it would look like the release had an impact. However, there is no indication that either is going to happen and there are no new supplies coming that can meet the demand.”
Subscribe to Logistics Management magazine
entire logistics operation. Start your FREE subscription today!