Pump pressure: Rising oil cost forcing diesel prices up

Pump pressure: Rising oil cost forcing diesel prices up

The cost of diesel fuel is continuing a nearly month-long climb thanks to rising crude oil prices spurred on by increased global economic activity. The price of diesel in the U.S. moved up three cents to settle at $2.86 per gallon this week. That’s 77 cents above the same period a year ago – capping an 11-cent spike over the last three weeks, according to data compiled by the Energy Information Administration

The cost of diesel fuel is continuing a nearly month-long climb thanks to rising crude oil prices spurred on by increased global economic activity. The price of diesel in the U.S. moved up three cents to settle at $2.86 per gallon this week. That’s 77 cents above the same period a year ago – capping an 11-cent spike over the last three weeks, according to data compiled by the Energy Information Administration (EIA).

Diesel prices in the West Coast region jumped the most this week, climbing four cents to $2.96 per gallon, with the cost of diesel in California also moving up four cents, to $3.02 per gallon, the EIA said. In the East Coast, Midwest, and Gulf Coast regions, diesel prices went up about three cents to $2.90 per gallon, $2.83 per gallon, and $2.82 per gallon, respectively.

The smallest increase took place in the Rocky Mountain region, the agency added, where the average cost for diesel went up about two cents to $2.85 per gallon.

Rising oil prices are what’s driving diesel costs higher, the EIA noted. Crude oil jumped $1.37 a barrel, or 1.8%, to $81.08 a barrel, this week – up from $69.48 a barrel on December 14.

EIA said it expects the crude oil market to strengthen again, with prices averaging about $81 per barrel over the second half of this year and reaching $84 per barrel in 2011. The agency noted that this forecast assumes that the U.S. real gross domestic product (GDP) grows by 2.3%in 2010 and by 2.5% in 2011, while world oil-consumption-weighted real GDP grows by 2.7% and 3.6% in 2010 and 2011, respectively.

Noel Perry, principal of research firm Transport Fundamentals and senior consultant with FTR Associates, said the uptick in diesel fuel costs should not be all that much of a surprise for truckers. He explained that’s because the supply and demand equation for crude says that a continued strong recovery in the global economy will cause a spike in crude oil prices – and if crude oil spikes, so will diesel.

“Note that fuel prices do not move in an orderly manner, so the move upwards [in diesel costs] will be sharp and probably surprising,” he told FleetOwner. “That’s bad for trucking because the faster the rise, the worse the cash flow crunch from lagging fuel surcharges. It could be a worse than normal problem this time because some carriers have committed to reduced [fuel] surcharges as a result of the [economic] downturn.”

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