Diesel prices up 4.6 cents for week of December 27

The ongoing upsurge in diesel prices remained on a steady path, with the Department of Energy’s Energy Information Administration’s recent release stating that diesel prices for the week of December 27 were up 4.6 cents from the previous week to $3.294 per gallon.

Diesel prices have been up for the last four weeks for a cumulative 13.2 percent hike, with this week’s tally marking the fifth time this year it has hit a new two-year high, topping the week of October 27, 2008, which checked in at $3.288 per gallon.

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. 

As of press time oil barrel prices were at $91.04 a barrel in electronic trading on the New York Mercantile Exchange, according to media reports. Recent reports have noted that the increase is tied to a decline in excess inventories in recent weeks, which is likely to continue. Even with increasing oil prices, some analysts contend that there will not be a subsequent negative impact on the slow-moving economic recovery, as rising prices have not hampered GDP growth.

And a Bloomberg report attributed this recent increase, which has led to a two-way high “amid strong crude consumption growth in emerging economies and optimism demand in the U.S. is slowly recovering from last year’s recession.”

But this increase also has the potential to crimp shippers’ transportation budgets, given the relatively low fuel prices they have factored into their transportation budgets throughout most of the last year. 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.

As 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.”