Diesel prices are up nearly 5 cents

Following two straight weeks at $3.067 per gallon for diesel gasoline, the price per gallon rose 4.9 cents to $3.116 per gallon for the week of November 8.

This marks the sixth straight week of the average price per gallon at $3 or more and is the highest it has been since the week of May 10, when it hit $3.127. Prior to the week of October 4, when diesel prices hit $3.00 per gallon, the price per gallon of diesel was below the $3.00 mark for 18 straight weeks. But the recent rise in prices is in line with gains in the price per barrel of crude oil, which has been slightly more than $80, on average, during the same period, although it has been rising in recent weeks.

Oil prices are $86.78 per barrel, according to media reports as of press time, which represents a high level for the year to date. An Associated Press report stated that oil prices have seen recent gains due to a weak dollar after the United States Federal Reserve decided to inject an additional 600 billion dollars into the market to stimulate the world’s biggest economy. The report added that The International Energy Agency (IEA) forecast that crude prices would grow to 113 dollars a barrel by 2035, despite environmental policies, essentially dooming climate-change goals, and more than one-third of the new demand would come from China’s appetite for energy.

The current average price per gallon of diesel is 31.5 cents higher than it was a year ago.
The EIA is calling for 2010 crude oil prices to hit $77.97 per barrel and 2011 prices at $83.00 per barrel, according to its short-term energy outlook. Both figures are below recent estimates of $79.13 for 2010 and $83.50 for 2011.

As LM has reported, if prices continue to rise at current levels, some industry experts contend that barrel prices will be between $80 and $90 in 2011 and the price per gallon of diesel will stay above $3 per gallon.

While diesel prices are manageable for now, shippers need to continually monitor and adjust transportation spend levels for any situations which could result in an unexpected uptick in prices.

This was the case when diesel hit $4.75 per gallon in 2008. What’s more, with limited insight into where prices are heading shippers and carriers need to be cognizant about being more efficient overall in freight transportation operations and taking measured steps to burn less fuel.

A shipper responding to a recent Logistics Management reader survey on fuel costs said in order to be efficient and profitable while dealing with fluctuating fuel prices and fuel surcharges is to hedge any variability with a Fuel Price Index based on the EIA national average.

“This will give some assurance that any small increases are absorbed by the carrier with major increases being shared by the shipper and carrier,” said the shipper. “Using such a vehicle will ensure that carriers will not pull the cost of fuel back on the shipper and in even worse case scenarios use fuel increases to add to their operating margins.”