Diesel prices start 2011 with another increase

Another week, another rise in diesel prices was again the theme, according to data released by the Department of Energy’s Energy Information Administration (EIA) this week.

For the week of January 3, the EIA reported that diesel prices were up 3.7 cents from the week of December 27 to $3.331 per gallon.

This continues a trend of escalating diesel prices, with this week’s gain marking the fifth straight increase for a cumulative 16.9 cent hike, coupled with this most recent hike once again marking a new two-year high for the sixth time in recent weeks. 

Diesel prices have been at $3 per gallon or more for 14 consecutive weeks. 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 hovering in the mid-$80s to low $90s, on average, during the same period. 

And in conjunction with higher diesel prices are higher oil prices. As of press time, oil barrel prices were checking in at $91.55 on the New York Mercantile Exchange, according to media reports. Where these prices head in 2011 remains to be determined, with estimates ranging from $75-to-more than $100 per barrel.

“We are looking at the second fuel price apocalypse of the 21st century,” said Tom Kloza, chief oil analyst for Oil Price Information Service, in a Los Angeles Times report. “Money flow is the performance-enhancing drug for prices. A spring peak in the neighborhood of $100 a barrel or higher is likely” for crude oil.

If these oil increases are to continue, it will likely lead to a scenario where shippers need to be prepared to plan for them accordingly, especially when taking into consideration the relatively low fuel prices they factored into transportation budgets for much of 2010.

And should prices return to the record-breaking levels of 2008, when diesel was $4.78 per gallon and barrel prices were in the $150 range, it could lead to a return to the past in which fuel consumption patterns forced shippers to consider things like bringing more manufacturing operations closer to home—a practice also commonly referred to as near-shoring or near-sourcing.

The EIA is calling for 2010 crude oil prices to hit $78.98 per barrel and 2011 prices at $86.08 per barrel, according to its recently-revised short-term energy outlook. Both figures are above previous estimates of $78.80 per barrel for 2010 and $85.17 per barrel for 2011.  On the diesel side, the EIA is calling for the price per gallon of diesel in 2010 and 2011 to average $2.98 and $3.23, respectively.

As oil prices ride the wave of fluctuating prices, a recent Logistics Management reader survey of about 150 logistics, supply chain, and transportation managers found interesting disparities regarding how much shippers’ average fuel surcharges were above their base rates.

If oil and diesel prices continue to head north, there is a possibility that supply chain demand might outstrip supply later this year, according to some industry stakeholders.
According to the American Petroleum Institute’s (API) chief economist John Felmy, these concerns are not unwarranted.

“Presently, there’s been strong growth in crude, but demand from India and China is also increasing, and OPEC is restraining its capacity,” Felmy told LM’s sister publication Supply Chain Management Review. “At the same time, we have in this country, a ‘permatorium’ on offshore drilling, which poses another problem.”