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Diesel prices are down for the fifth straight week

By Jeff Berman, Group News Editor
October 12, 2011

Diesel prices headed down for the fifth straight week, falling 2.8 cents to $3.721 per gallon, according to the Department of Energy’s Energy Information Administration.

This nearly 3 cent decline comes on decreased of 4.7 cent, 2.9 cent, and 0.6 cent declines over the previous three weeks. This was preceded by a 5.8 cent gain over the previous two weeks. Prior to that, prices were down for four straight weeks, falling 2.5 cents, 6.2 cents, 4 cents, and 1.2 cents per gallon, respectively, over that period. Before that month of declining prices, diesel saw a cumulative 9.9 cent gain over a three week period.

The average price per gallon for diesel stands 40.3 cents below 2011 high of $4.124 per gallon the week of May 2, which marks the highest level for diesel prices since August 2008, when prices were approaching $5 per gallon. The price per gallon for diesel fuel has not exceeded the $4 mark since the week of May 16, when it hit $4.061.

Diesel is now 65.5 cents higher per gallon than it was a year ago at this time, down from declines in the mid-80s and higher for most of 2011. In its short-term energy outlook, which was updated earlier today, the EIA is calling for diesel prices to average $3.80 per gallon in 2011 (down from $3.80) and $3.73 in 2012 (down from $3.87), with oil pegged at $92.36 per barrel in 2011 and $88 in 2012.

Oil is currently trading at $85.46 on the New York Mercantile Exchange. The price per barrel has dropped roughly 12 percent since the end of June and prices are down in the neighborhood of 8 percent on a year-to-date basis.
Forbes reported yesterday that in its latest oil market report, OPEC lowered its forecasts for the global economy and the U.S. And while they expect softness in 2012 oil demand to outpace the slowdown in supplies, putting further pressure on prices. Global oil demand in 2011 will average 87.7 million barrels per day, according to OPEC. This is up 0.88 million barrels per day from previous estimates, which had already suffered various downward revisions, noted the report.
With oil prices remaining in the $80-to-$90 per barrel range, prices are still well above last year’s average of $79.64 per barrel, which means gasoline pump prices should remain higher than last year’s levels, according to various reports.
While diesel prices have been below the $4 per gallon mark, shippers and carriers have told LM the still relatively high prices remain a concern. While many have indicated that prices at current levels are still digestible, they cautioned that could quickly change depending on how quickly prices rise.

At last week’s Council of Supply Chain Management Professionals Annual Conference in Philadelphia, Chick Taylor, Chuck Taylor, founder and principal of Awake! Consulting, an organization that encourages supply chain professionals to play active roles in shaping national energy policy, noted that should oil prices eventually rise to $200 per barrel or more, it could spell significant trouble for shippers’ supply chain operations.

“These 12,000-mile supply chains are not going to survive if that happens,” said Taylor. “[Shippers] need to start thinking about what they are going to be doing, because a lot of stuff they are doing in China and India now will need to move to closer places like Mexico.”

Taylor said such an event could serve as an impetus for how supply chains function and operate. He explained that in a steel shipper cannot move iron ore from Brazil to China to be processed and then shipped to the U.S. at $200 per barrel. When this happened in 2008, he noted that steel production in the Midwest started to come back. 

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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