Diesel Fuel Prices Are Falling, But Why?

It’s really hard to believe that diesel fuel prices and gas prices are falling, especially if your local gas station hasn’t lowered prices yet. Ok, I realize that MOST of us have not seen the lower fleet fueling prices at the pump yet. This is basically because most retail locations are taking their time lowering their prices—and your fueling costs. But yesterday, in the fairly small town where I live, the price for gas at a low-cost retail station was down to $3.93 a gallon. A half mile away it was $4.09 a gallon, and half mile in the other direction it was $4.19 a gallon. Knowing the fueling market as well as I do I recognize that even that low-cost retail station is making a nice margin. The others are knocking it out of the park, but that isn’t good for consumers. Keep watching, prices will drop down near you soon, fueling costs will get better, trust me.

What is causing a dip in diesel fuel prices now, especially after prices went up 20 out of the past 22 weeks in a row? And, why now? It is unusual, especially for this time of year as we approach summer when prices tend to be on the rise. Let’s not forget our daily friend the gasman that we see the prices daily on roads and almost all of us have to see at least once a week for a fillup, those gas prices are falling too. The big question is why? And the answer is simple, but yet complicated.

As we look back for clues, remember that diesel fuel prices started their run of increases around November 29, 2010 when national DOE prices were $3.16 and a barrel of crude was $81.65. That was about the same time many of the large brokerage houses came out saying that crude oil was going to go over $100 a barrel. Uncertainty creates fear, but by the time we got to February 14, 2011 crude oil was still only at $83.66 a barrel. Diesel fuel prices had climbed to $3.54 based on supply needs for heating oil in the Northeast United States and China’s continued increased consumption. Then, all heck broke loose.

Fighting and political unrest in the Middle East scared investors who speculated that there would be interruptions in oil supply. Libya’s civil war created a very small supply issue. Fuel prices took off. In mid February the price per barrel was $83.66 and by April 29th it was up to $113.39. During that same time, the U.S. dollar went to one of its weakest levels in history. Investors were betting that fighting would continue in the Middle East that could create oil supply issues as we begin the summer driving season and the usual increased demand for gas. There is a lot of tension, speculation and fear.

Take a snapshot of today. By all accounts of market fundamentals, things look fine. The world’s largest oil producer Saudi Arabia h has committed to pick up any lost supply from other countries and stated that crude oil prices should be in the range of $80 to $90 a barrel. You, me and every other car-driving American have cut back on our gas purchases when they hit $4/gallon. The DOE shows 2.4% less gas being used this year than last year over the last four weeks. The U.S. dollar is getting stronger. Fighting continues in Libya, but the initial fears have gone away. We killed the most wanted man. And speculators woke up. Don’t poke the bear!

The sell off happened the first week of May and now with new trading policies on speculators we shouldn’t have crazy ups and downs. All great news, I can hear you saying, but your real question is why am I still paying so much if crude oil prices are down $15 dollars a barrel? Time. Give it a few weeks. As a very rough basic gauge: for every dollar crude oil goes down, diesel fuel prices and gas prices will go down between 2-3 cents per gallon.

Let’s not forget that Mr. Truckstop and Miss. Retail Station have been taking it on the chin the last several months so they are looking to hold onto some of that margin that is in the fuel pricing now. What goes up fast comes down slow. I would expect to see National DOE diesel fuel prices by July to be close to $3.75, maybe even less. It all depends on how long the retailers can hold their margin. Retail prices for gas should fall 35 cents over the next few weeks, but there will be retailers out there trying to hold onto every last penny.

Be smart and shop well. If you have any fuel management issues, feel free to reach out to us and we will walk you through.