Increase in Worldwide Supply of Crude Oil Leads to Falling Diesel Prices

Diesel prices are a major contributor to short and long haul dedicated trucking companies. Small fluctuations at the pump can have positive or negative repercussions on the cost of moving products to market, and trucking outfits need to stay abreast of current trends in the energy sector.Worldwide crude oil prices are continuing their descent into 2015 due to several factors. First, the Organization of Petroleum Exporting Countries (OPEC) stated in November that the Middle East consortium was not interested in cutting crude production and losing critical market share. Secondly, the United States continues to increase supply through advanced drilling techniques such as horizontal drilling and hydraulic fracturing, to the tune of just under 1 million additional barrels per day when compared to 2014 production. Lastly, worldwide demand is curtailing. China, the world’s second-largest consumer of oil, is in the midst of an economic downturn and the country is witnessing a slowdown in their increasing rate of consumption. Meanwhile, more stringent federal fuel economy standards in the United States are contributing to shrinking demand.

 

As a result of these geopolitical and economic factors, the price of a barrel of crude oil has been cut by over fifty percent in just the past six months. So how is this affecting diesel prices? The price at the pump has not fallen as fast as crude since only about half of diesel production cost is directly tied to the cost of oil. This is due to the fact that the remaining factors in price per gallon, such as refining, distribution and marketing, and of course, taxes, are remaining constant. But the diesel fuel price has followed the downward trend of the crude oil market–retreating from a high of $4.00 per gallon in April of 2011 to the current nationwide average price of $3.05 per gallon, the lowest diesel has been in over four years.

However, east coast trucking fleets are still paying a slight premium over the national average. The US Energy Information Association (EIA) reports that in the Mid-Atlantic area, Veltri’s main service area, diesel prices are running at $3.13 per gallon. Meanwhile, Gulf Coast trucking companies are filling up with the lowest price in the nation at $2.96 per gallon. These are still excellent prices when compared to prior years, and this is a trend that is expected to continue. The EIA Short-Term Energy Outlook report indicates that diesel prices are expected to remain constant and under $3.00 per gallon for all of 2015. The agency forecasts a slight increase to about the $3.50 a gallon mark as we move into 2016.

Diesel fuel prices are a major contributor to short and long haul dedicated trucking companies. Small fluctuations at the pump can have positive or negative repercussions on the cost of moving products to market, and trucking outfits need to stay abreast of current trends in the energy sector. Although the Mid-Atlantic diesel prices are slightly higher than the national average, the modern fleet of Veltri, Inc. recoups some of extra cost since we use less fuel per mile. Our savings are attributable to the fact that most Veltri tractors are less than two years old and thus take advantage of the most current fuel economy technology available–which is not only great for the bottom line, it’s also environmentally responsible.

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