Diesel prices dropped for the fourth straight week, according to data issued yesterday by the Department of Energy’s Energy Information Administration.
With a 4.5 cent decline, the average price per gallon now stands at $2.379 which is a mere 2.7 cents above the lowest weekly average going back to June 1, 2009, when it was as $2.352 per gallon. Over this four-week stretch of declines, diesel has fallen a cumulative 12.3 cents.
Compared to the same week a year ago, the average price of diesel is down $1.156.
Earlier this week, the Department of Energy’s Short-Term Energy Outlook called for the 2015 average price of diesel to be $2.71, with 2016 expected to be lower at $2.67. It also called for WTI crude oil to hit an average of $49.08 in 2015 and $50.89 in 2016.
Oil is currently trading at $37.51 per barrel and is near its lowest levels since February 2009. This low price comes at a time when oil production remains high, with OPEC declining to reduce its output while the sector remains heavily oversupplied, and in turn, keeping prices low. A CNN report said that current OPEC output is at 30 million barrels per day, with actual daily production estimated at 31.5 million barrels.
Because of the volatile nature of fuel prices, shippers are accustomed to tough negotiations with carriers on fuel surcharges. Now that diesel prices have fallen, shippers say more will be expected of them to keep those savings for their companies.
“The ongoing decrease in the cost of diesel certainly helps us from a financial perspective,” Jeff Brady, director of transportation & logistics for Harry and David, the specialty gourmet food retailer, told LM. “However, after the several years of high fuel, many shippers began tracking diesel much more closely.
“Now, as it drops, we are further challenged to develop the crystal ball of ‘What will diesel do?’ at an even more rapid pace. Furthermore, we have to now work hard to ensure that we don’t get greedy and assume fuel will stay this low,” Brady added.
In the past, diesel had cost more than gasoline because U.S. refineries export much of their diesel output. That leaves less available for the domestic market, and federal taxes are higher for diesel than for gasoline. But as gasoline demand has risen around the world, refineries are running full out worldwide to meet that demand, resulting in a relative glut of diesel fuel, experts say.
Oil analysts explain that the drop in diesel would indicate a worldwide glut in crude oil is becoming a glut in refined products as well. This could keep diesel prices at these depressed levels well into 2016, they say.
The drop in diesel costs also is a result of heavy investments by refiners in recent years to make a range of products known as “middle distillates” that include diesel, jet fuel, heating oil and kerosene.