Diesel drops as demand falls

Although international unrest that involves oil-producing regions around the Middle East usually drives fuel prices higher, diesel and other petroleum products have experienced a sharp decline in price since the terrorist attacks and U.S. retaliatory strikes in Afghanistan. While lower fuel costs are generally good news, in this case lower prices signal a slowdown in worldwide business activity, according to observers.

With crude oil trading at $22 a barrel, the Dept. of Energy reported a 17.4¢/gal. drop in the national average price of diesel between September 17 and October 17. Retail gasoline prices dropped 20.6¢/gal. over the same period.

“It's lack of demand, both domestic and worldwide,” says economist Martin Labbe. With predictions of milder temperatures this winter, Labbe expects fuel prices to remain stable until the end of the year, and then increase slightly in the first quarter of 2002.

“OPEC will adjust (crude oil) production because they want to get it up to $28 a barrel,” he says. Although oil producers in the cartel may not be able to drive crude prices to that level, Labbe also expects to see an increase in demand starting with the New Year. “We expect (fuel) prices to pick up slightly going into the first quarter because that's when we expect to see the upturn in the economy become noticeable. You can't have interest rates where they are right now and pump $100-billion into the economy and not see some (positive) impact.”