In case you haven’t noticed, crude oil prices are rising and taking the cost of diesel with them. If you’re a shipper, you’ve probably noticed your weekly fuel surcharge is also rising as diesel hits $3 in parts of the country.
But perhaps because Americans enjoy some of the lowest prices for gasoline and diesel in the industrialized world, the price rise may not be as noticeable.
Also, to put crude oil prices in context, they still are nearly $60 a barrel—they were about $37 a barrel a year ago before the COVID pandemic essentially shut down economic activity.
The U.S. average diesel fuel price increased nearly 10 cents to $3.07 per gallon on March 1. That’s 22 cents higher than a year ago. The West Coast and East Coast prices increased more than 20 cents to $3.54 per gallon and $3.08 per gallon, according to the U.S. Energy Department.
Shippers, directly and indirectly, are paying for this rise—even though they may barely notice it. That’s because of the widely adopted fuel surcharge methodology, which adds a percentage increase every Monday when the Energy Department’s weekly on-highway diesel cost index is released.
After labor, fuel is the largest expense of a trucking company. In 2019, the last full year for which statistics are available, fuel costs amounted to 39.6 cents a mile. That was a bargain, compared with the 64.5 cents per gallon that diesel cost a typical truckload carrier’s operation as recently as 2013.
Let’s remember as late as 2014, crude prices were dancing around the $100 a barrel mark. Then came the peak of the fracking revolution in North America, driving up domestic production and causing crude prices to be essentially halved.
So what’s behind the latest surge? Let’s examine some of the factors involved.
There are a number of worldwide geopolitical factors that go into the price of crude. Among them:
But there are some factors that make no sense. Among them:
There has been no single, global economic shock – an oil embargo, say – that has force production cuts.
So what is causing the latest rise in diesel?
According to the U.S. Energy Information Analysis of February, the short answer is it’s unclear. In the past, specifically from 2003-2008, OPEC’s spare production levels were low. That limited its ability to respond to demand and price increases.
But since the middle of last year, Russia and Saudi Arabia, in particular, have cut oil production. Saudi oil production is off nearly 20%, according to the EIA. Exact figures for Russia are not available. But the result has been an increase in crude oil prices.
Whether that continues under the Biden administration is not known.
Domestic oil producers are playing a role as well. Weekly U.S. oil output recently fell to 10.5 million barrels a day in the middle of last year. That’s down from a near-record of 13 million barrels a day from late March, government data show.
That was the biggest 11-week drop on record in figures going back to 1983. In percentage terms, the decline was the biggest since the 2008 financial crisis.
Of course, Wall Street speculators are always a factor. Trading in Brent crude and West Texas Intermediate crude account for about 15 percent of all worldwide commodities trading. Speculators may have driven up the price slightly over the past year or so, analysts estimate.
As the cold weather eases, refineries that were forced to temporarily shut down as a result of the extreme weather usually require at least three to five days to resume operations, according to the EIA. But it said several regional refiners have already announced that cold temperatures damaged some of their units, which suggests a possible longer recovery period.