Diesel prices drop below $4 per gallon

Diesel prices dropped 6.4 cents this week to $3.997 per gallon, according to the Department of Energy’s Energy Information Administration (EIA).

This represents the single largest weekly decline since a 7.3 cent dip from the week of May 24, 2010, and it marks the third straight week and the fourth out of the last five that the price per gallon of diesel headed down. This is also the first time diesel has been below the $4 per gallon mark since hitting $3.976 on April 14.

On an annual basis, the price per gallon for diesel is up $0.976 per gallon.

A recent report from the EIA stated that the recent decline could be due to a softening in demand, given a May 12 report from the EIA which indicated that the country’s crude inventories rose by 3.8 million barrels in the first week of May, and that gasoline stockpiles rose 1.3 million barrels, suggesting demand for crude and gasoline is softening, according to a Dow Jones report.

Even with the recent decline of diesel prices, shippers and carriers remain concerned about the price of diesel and oil. While many have told LM that prices at current levels are still digestible, they cautioned that could quickly change depending on how quickly prices rise with summer driving season approaching.

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.

The price per barrel for oil is currently trading at $98.57 a barrel on the New York Mercantile Exchange, according to wire reports. This is slightly up from previous levels, due to Goldman Sachs raising its crude forecasts on concern the shutdown of Libyan output will drain spare OPEC supplies, according to the Associated Press.

Goldman said that it expects the “ongoing loss of Libyan crude oil production and disappointing non-OPEC production will continue to tighten the oil market,” noted the AP report. “It’s only a matter of time until inventories and OPEC spare capacity will become effectively exhausted, requiring higher oil prices to restrain demand.”

Derik Andreoli, Ph.D.c., Senior Analyst at Mercator International, LLC, noted in a recent LM blog posting that volatility is precisely what should be expected when oil markets are tight, as they have been since the onset of the recovery.

“Despite living up to expectations, however, the recent volatility has led some to conclude that the prices simply don’t reflect the underlying fundamentals of supply and demand, but such a conclusion is not supported by sober analysis,” he wrote. “The majority of recent news regarding the supply side of the equation strongly indicates a further tightening of oil and fuel supplies.”