Analysts believe the trucking industry should not see any further big increases in the price of diesel fuel, after a more than 15 cent spike in the average per-gallon price of diesel across the U.S. last week in response to the ongoing uprising against Libyan dictator Col. Moammar Gadhafi, which is now in its 14th day.
However, the cost of diesel fuel is expected to remain elevated for a while in response to high oil prices driven by what’s increasingly viewed as a civil war in Libya – the world’s 12th largest oil exporting nation – and fears that such unrest could continue to spread throughout North Africa and the Middle East.
“I think a lot of the upward swing in diesel prices is over for now,” Denton Cinquegrana, editor-west coast spots for the Oil Price Information Service, told Fleet Owner. “We’re pretty close to it topping out; we shouldn’t see any more huge swings.”
The average price for diesel in the U.S. now stands at about $3.713 per gallon, he said, up from $3.57 last week and $3.53 the week before. Since mid January, average U.S. diesel fuel prices are up over 30 cents per gallons and have increased for 12 straight weeks, according to data tracked by the U.S. Energy Information Agency (EIA).
OPIS’s Cinquegrana cautioned, however, that he does not expect the price of oil – and thus the price of diesel – to drop anytime soon as global markets remain “spooked,” in his words, that a similar level of civil unrest could break out in a larger oil producing nation such as Saudi Arabia.
“That’s the 900-lb.s gorilla in all of this,” he explains. “Right now, unrest is occurring in Oman, but that country produces less than 1 million barrels of oil per day (b/d). But if such unrest spreads to a major oil producer, like Saudi Arabia, then all bets are off. That fear is playing into oil prices right now.”
Currently, West Texas Intermediate (WTI) crude oil prices are around $97.65 per barrel, while Brent futures – a benchmark crude oil price based on North Sea production – is holding around $112,17, which is down from a high of nearly $119 last week.
The EIA added that the current deviation between the WTI, Brent, U.S. coastal grade pricing for oil is unusual in its scope and duration and seems to have caught the market by surprise. In the 1980s and 1990s, for example, WTI usually traded at a premium to Brent, but since then, it’s been increasingly common to see a reversal in that relationship – but never to the extent currently experienced.
“A very large WTI discount occurred once before in early 2009, in the wake of the financial meltdown. This time the discount is even deeper and has been going on longer,” the EIA noted in a brief released last week. “Since December of last year, while WTI prices remained relatively flat, Brent tightened both due to supply problems – North Sea platform and field maintenance and shutdowns – and strong demand, with more and more Brent-related grades pulled into Asia for demand and precautionary stock building.”
OPIS’s Cinquegrana also noted that filling the “gap” left by the near shut down of Libya’s oil industry – which produced close to 1.8 million b/d in 2010 – will also take time, meaning the market would “re-balance” in terms of crude output quickly.
“It takes a while to bring replacement crude to market – it’s not like turning on a faucet,” he explained. “Saudi Arabia has extra capacity and there’s enough supply to get through this, but prices are going to remain high until things start to cool off a little bit.”