Fuel forecast remains gloomy

Oct. 12, 2005
Fuel forecast remains gloomy

The Energy Information Administration (EIA) has offered a dreary energy outlook for the U.S. as the country heads into winter, predicting a major jump in heating costs and sustained high oil prices-- none of which is good news for trucking’s projected fuel bill.

The latest EIA report estimates that heating bills for all fuel types should cost Americans about one-third more this winter on average-- assuming typical weather—but if there is a colder-than-normal winter, energy prices could climb nearly 50%.

The agency expects oil prices to stay in the $64 to $65 per barrel range next year, up from the $58 a barrel average expected for 2005. That should keep diesel fuel prices high. Damage caused by Hurricanes Katrina and Rita to U.S. refinery capacity may exacerbate the problem as seven oil refineries—or about 11% of total U.S. refining capacity-- remain shut down, said EIA.

“Logging companies in our state are screaming about the cost of fuel,” owner-operators Carol and Tom Coach of T.C. Trucking of Virginia told FleetOwner. “Most of them have trucks of their own so on top of paying for the truck fuel, they have to pay for off-road diesel for their [logging] equipment as well. The [logging companies] say they cannot afford to give anyone more money because the chip and paper mills are not giving it out. They say they cannot afford to because the cost of fuel is so high. So it just keeps going down the line and the little guy get hurts.”

“Fuel cost is the biggest issue facing trucking right now, especially smaller fleets,” Richard Bell, president of Little Rock-based consulting firm Bell & Company, told FleetOwner.

“Diesel is particularly vulnerable since it is the one product that finds demand at or above last year’s levels,” Tom Kloza, editor of the Rockville, MD-based Oil Price Information Service, told FleetOwner. I believe that retail diesel prices [should] stabilize but should also be prone to winter ‘super-spikes’ if temperatures get [very] cold.”

Kloza also noted that diesel fuel and heating oil are actually cheaper than “downstream” natural gas prices, so some commercial and industrial customers might turn to oil, rather than natural gas for their boilers – placing more demand on oil supplies in the process.

Pete Anderson, CEO of Des Moines, IA-based FCStone Group, Inc., a commodities risk intelligence firm, added that the price spikes in diesel fuel costs are also affecting shippers, particularly in terms of higher fuel surcharges.

“In the past three years, fuel surcharges have increased the total freight bill for the nation’s manufacturers by more than 25% … and may well rise even higher in the aftermath of Hurricane Katrina,” Anderson noted. “Even the most conservative companies are having a very difficult time with their [shipping] budgets.”

He explained that in most businesses, budgets for the shipping of goods were established many months prior to the escalating fuel costs that began in early summer. When transportation companies pass on increased fuel costs through surcharges, the shipper or manufacturer usually suffers a loss in their margin, ultimately affecting the bottom-line profits of the company.

For truckers, however, the situation is dire, said Gov. Bill Graves, president & CEO of the American Trucking Associations. “The U.S. trucking industry depends upon sufficient and affordable diesel fuel supplies to haul 9.8-billion tons of freight every year,” he said. “Given current fuel prices, the industry is on pace to spend an unprecedented $85 billion on fuel this year-- $23 billion more than in 2004.”

About the Author

Sean Kilcarr | Editor in Chief

Sean previously reported and commented on trends affecting the many different strata of the trucking industry. Also be sure to visit Sean's blog Trucks at Work where he offers analysis on a variety of different topics inside the trucking industry.

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