Diesel prices crack the $4 per gallon mark, according to EIA

As was widely expected, diesel prices eclipsed the $4 per gallon mark this week, according to data released this week by the Department of Energy’s Energy Information Administration (EIA).

A 10.2 cent weekly hike brings the current price to $4.078 per gallon, following a 4.4 cent increase last week and a 2.5 cent gain the week before. Diesel prices have been up 18 of the last 19 weeks. And on an annual basis, the price per gallon for diesel is up $1.009 per gallon.

This increase marks the first time diesel has been above the $4 per gallon mark since the week of September 15, 2008, when it hit $4.023.

As LM has reported, diesel prices and the price per barrel of oil have been increasing for many reasons, most notably due to political and civil unrest in the Middle East and North Africa, specifically in Libya in recent weeks, has resulted in oil producers in that region suspending or shuttering operations, according to media reports. This has subsequently led to tighter supplies, which is driving up oil and gas prices. And the recent earthquake and Tsunami in Japan also has the potential to lead to further prices hikes, too, say many industry experts.

At press time, the price per barrel for oil was $106.86 on the New York Mercantile Exchange, according to a Bloomberg report, which added that oil prices have fallen 6 percent since April 8, marking the biggest two-day retreat since Feb. 4 and Feb. 5, 2010.

The Bloomberg report added that the International Energy Agency and International Monetary Fund said that prices above $100 a barrel are starting to hurt the global economy, with the IMF citing “real risks that a sustained $100-plus price environment will prove incompatible with the currently expected pace of economic recovery.”

In terms of how these prices can impact supply chain and logistics operations at a time when freight volumes are showing slow but consistent growth, many shippers have expressed concern about the pace of these diesel increases, explaining that if prices continue to rise at their current pace, it has the potential to hinder growth and increase operating costs, which will, in turn, force them to raise rates and offset the increased prices to consumers.

This was made clear in a recent Logistics Management reader survey of roughly 250 shippers. The survey found that if fuel prices continue their ascent, 70 percent—or nearly 180—of the shippers surveyed indicated they would need to adjust their freight budget to cover higher than budgeted fuel prices.

Nearly 40 percent of shippers said they would adjust their fuel budgets by 6-to-10 percent and 15 percent of shippers said they planned to adjust budgets by 11-to-15 percent.

In any event it appears high fuel prices will continue to be the norm for the foreseeable future.

“Even if the traded price for Brent Oil falls, the price for diesel will continue to climb for a while,” said Derik Andreoli, Ph.D.c., Senior Analyst at Mercator International, LLC. “When it comes to diesel markets, oil supply is not the pricing problem. The U.S. is currently exporting one out of every five gallons produced. This goes against free market principles, but if we really wanted to bring the price down to aid our recovery, we would stop exporting this valuable commodity that means so much to our energy and national security.”

For related articles, please click here.