Diesel prices continued to fall as 2001 came to a close, with prices hitting a 27-month low on Dec. 3. According to the U.S. Energy Information Administration, the $1.194 national average for on-highway diesel fuel was 45.8 cents lower than a year ago. All energy prices were falling as the year ended. U.S. Labor Department figures showed a 6.3 percent drop in consumer energy costs in October, the largest single-month drop in energy costs since March 1986.
Most observers expect fuel and other oil product prices to remain relatively low for at least the first six months of this year, if not longer. Reduced demand from a slowing economy, plenty of fuel stock inventory and a mild autumn have been cited as factors leading to lower prices at the pump. On the other hand, bad weather, demand growth and world affairs could alter that outlook
“I’m better at short-term forecasting than long-term forecasting, but I would say diesel prices are going to remain low for at least the next six months,” said Mark Derks, manager of e-business solutions for T-Chek, a company that charts fuel costs. “Prices will at least be lower than more recent historical trends.” Derks said he based his forecast for lower prices on a number of factors, primarily “the amount of supply that’s available out there, less jet fuel refining because of lower demand, and a lot of base product crude oil that is being refined into distillate product and gasoline product. That has really put quite a bit more of those products out in the market.
“It’s as good as it’s been in a long, long time, and I would expect that to continue unless we have severe storms that effect a substantial increase in demand or significant impact on distribution.”
The EIA agrees, saying it expects “some upward drift” in oil prices in the second half of 2002. But that prediction assumes a recovery in U.S. and world oil demand. In a market report, the EIA said diesel fuel oil prices “tumbled from September to October” last year, falling an average of 15 cents per gallon over that time period. EIA said the primary conditions leading to falling prices were lower crude costs and a weak economy. This winter, EIA says diesel prices will run at least 25 cents per gallon lower than last winter.
Even as prices continue to fall, truckers won’t find very much 99-cent diesel out there, forecasters say. “I don’t think the national average will go much lower than $1.15,” or about the 15-year average, Derks said. “I think it could settle back into that range. If it goes any lower than that, I would be surprised, but at the same time, I would feel we were pretty lucky.”
Other factors pointing to lower prices include low costs in the wholesale, heating oil and crude oil markets. Wholesale prices were less than 60 cents a gallon last fall after spiking to just more than $1 a gallon right after the Sept. 11 attacks. “Wholesale prices haven’t been under 60 cents for years,” Derks said. “Heating oil markets are low and crude oil prices are in the $19-a-barrel range. Given the wholesale and futures markets are as low as they are, if those markets were to turn upward, it will take awhile before it will get to the retail side.”
Severe weather could push prices higher by increasing the demand for heating oil, which is a distillate product like diesel fuel. “The one thing that folks should be concerned with is the weather,” Derks said. In addition to reduced demand and low crude oil prices, a relatively warm fall in the Plains and Northern states also helped keep prices down. “The warm weather we were having in the Northeast and Midwest is having a pretty big impact on prices too. If it continues to be fairly moderate, if the weather continues to be favorable, prices will follow with that trend. If it becomes bitterly cold or we have some very severe winter storms that might impact distribution and things of that nature, you might see some spiking in the marketplace.”
If the winter turns out colder than anticipated, with disruptions in distribution and increasing demand, the price run-up should be less severe than more recent price spikes, Derks predicts. “If we have real cold weather, prices will move higher, but I don’t know that they will move 30 or 40 cents higher. For prices to move that much, you have to have some type of political, governmental or global act that would push it higher.”
Some economists don’t want fuel prices to fall too far, however. “I think we don’t want to see a collapse in oil prices,” Joe Quinlan, an international economist with Morgan Stanley in New York, told the Associated Press. Quinlan said that while a drop in oil prices is a “near-term positive” for the economy, if the price falls too low it will ultimately hurt the world economy because of the impact on the economies of oil-producing countries.
Oil prices would have to drop significantly more for that scenario to play out. In the meantime, truckers can take advantage of the best fuel prices they’ve seen in a while.