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What's Behind the Lowest Diesel Prices in Years?


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Heavy Duty Trucking / December 23, 2014

Since the summer, the price of oil has plummeted 50 percent, hitting its lowest level in more than five years about a week before Christmas. Riding along has been a drop in fuel costs, with diesel falling from the high of the year at $4.021 in March to $3.419 in mid-December, according to U.S. Energy Department figures.

The result has been billions of dollars in savings -- not just for the trucking industry ($350 million to $375 million annually for each one-cent decline, according to the American Trucking Associations), but also for consumers. They have seen gasoline prices fall by an even greater margin, translating into a “consumer windfall” totaling $125 billion, according to research from investment banking firm Goldman Sachs, which called the drop a “middle class tax cut.”

One of the main factors behind all this is a worldwide glut of crude oil that’s expected to peak in the spring or summer of 2015, according to Tom Kloza, global head of energy analysis with the Oil Price Information Service. The glut is due in large part to Saudi Arabia and other OPEC member nations not cutting back on crude production.

“One theory is the Saudis would like to do as much collateral damage [as possible] to Iran, one of their main rivals in the region, and to Russia, which is one of the big meddlers in the region," Kloza says. "There [also] is the idea they maybe they want to make North American shale producers realize that finding shale oil is not necessarily a layup, and it’s certainly not a layup when prices are where they are right now.”

Kloza noted increasing U.S. production of oil from shale formations is another cause for the drop in prices, and that growth is expected to continue into 2015. “We are going to get to the highest U.S. crude production since 1973 when Richard Nixon was president,” he says, though growth in the new year could be slower than it was in 2014.

The third, and possibly biggest factor for these declines, has been an easing of worldwide demand for crude. This is due in part to some economies overseas throttling back, according to a U.S. Energy Department outlook issued in December, as well as some emerging economies not performing as strongly as earlier predicted, according to Kloza.

Kloza expects the ride of lower prices will continue well into 2015, though it will likely bottom out in mid-January. “We’ll see prices rebound nominally in the first quarter…but generally, without question, 2015 is going to see much deeper valleys for prices and much lower peaks, so it should be a good situation for everyone who is one the end user side.”

Kloza, however, said projections of actual prices into 2015, including a recent one from the U.S. Energy Department that on-highway diesel will retail for an average of $3.07 per gallon next year “is very difficult to say.”

For many trucking companies the decline in fuel prices has been a welcome development, even though the fuel surcharge of their rates has declined, according to Bob Costello, chief economist at the American Trucking Associations.

“It’s a win not only for the trucking companies, because they don’t recapture 100% of the fuel spent, but it’s also a win for the shippers,” he said. “It also comes at a great time because fleets are paying drivers more, which they need to because they are in high demand, therefore this kind of helps with that as well."

According to Costello, the downside of lower diesel prices is trucking companies involved in oil field operations are not expected to see the kind of growth next year that they have seen over the last few years, because a lot of oil companies are slowing down the growth in fracking as a result of lower oil prices.

The best thing about lower oil and fuel prices, he said, may be for the overall consumer.

“There is the indirect benefit that you and I have more money in our pockets, because we are not spending as much at the gas pump and hopefully we are spending that somewhere else. And of course we know whatever we are buying, trucks are going to bring it."

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U.S. diesel and gasoline prices keep dropping

Fleet Owner / December 23, 2014

Average retail pump prices for both diesel and gasoline continued falling this week, according to data tracked by the Energy Information Administration (EIA), with the agency projecting annual motor fuel expenditures for U.S. households could fall to their lowest level in 11 years in 2015.

The national retail pump price average for diesel fell 13.8 cents this week to $3.281 per gallon, EIA reported, which is 59.2 cents cheaper when compared to the same week in 2013.

Diesel prices declined in every region of the country, the agency noted, falling the most in the Midwest by 17.9 cents to $3.294 per gallon.

The second and third largest declines occurred in the Rocky Mountain region followed with a 16.6 cent decline to $3.338 per gallon, followed by the Gulf Coast with a 15.3 cent dip to $3.175 per gallon – the cheapest price for diesel in the U.S., EIA reported.

The national retail pump price average for gasoline dropped 15.1 cents this week to $2.403 per gallon – marking the 88th day of continued price declines – which is 86.8 cents per gallon cheaper when compared to the same week in 2013, the agency said.

Gasoline prices declined in every region of the country, dipping the most in the Rocky Mountains by 20.2 cents to $2.384 per gallon.

The Midwest posted the second-largest drop in gasoline prices at 19.3 cents to $2.224 per gallon, followed by the Gulf Coast with a 15.2 cent decrease to $2.176 per gallon, which is the cheapest price for gasoline in the nation, EIA noted.

Based on current fuel price trends, the agency now expects the average U.S. household will spend about $550 less on gasoline in 2015 compared with 2014 – a drop attributable to a combination of falling retail gasoline prices and more fuel-efficient cars and trucks.

The EIA said household gasoline costs are forecast to average $1,962 next year – the first time such expenditures dipped below $2,000 since 2009, according to EIA's December 2014 Short-Term Energy Outlook (STEO).

The agency added that the price for U.S. regular gasoline has fallen 11 weeks in a row to $2.55 per gallon as of December 15, down $1.16 per gallon from its 2014 peak in late April and the lowest price since October 2009, with gasoline prices forecast to go even lower in 2015.

EIA reiterated that U.S. gasoline prices are falling largely because of lower crude oil prices – now estimated to average $68 per barrel in 2015 – which accounts for about two-thirds of the price U.S. drivers pay for a gallon of gasoline.

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Tom Kloza is the "man" when it comes to a good analysis of what is happening in the oil patch. And what he is quoted in the Fleet Owner story is no exception.

Key point as always, Saudi Arabia is at the pricing throttle. And they have always been smart enough to recognize that while high prices are to their (and Opec's) benefit, they have always understood that if they get too greedy they have a bad effect on the world economy and if they slow it down too much, it hurts them. Unfortunately not all OPEC members recognize that and many have built their economies around high prices and can't tolerate a lower price. Too bad for them as the Saudis are willing to accept less to keep income steady even at a reduced rate.

Also no doubt they (Saudis) are sensitive to what Iran and Putin is doing and they can keep those bad boys in check to a degree. They recognize the importance of a stable world scene. And as to our great success with shale, fracking etc, they know that the economics that make certain production say with a price close to 100 bucks a barrel a winner, once the price gets closer to 50 all of a sudden the economics don't work.

Best example. in modern times crude moved from the well to the refinery basically by the two cheapest modes of transportation-pipeline and marine. Granted some moved by truck when distances were very short, but very little crude moved by rail. All of a sudden today we found crude moving by rail in unit trains. Moves such as unit trains from the Dakotas to Albany NY on the Hudson made sense. The crude is then off loaded and shipped down the Hudson by barge to Jersey and even Philly refineries. At 50bucks, think those transportation economics are going to work? The Saudis understand this and already things in the Dakotas are cooling off.

Last point as to where prices will go, enjoy the prices while we can, but the really knowledgeable people are being cautious. A week or so ago I mentioned on another site, things can change very quickly if say Putin or the Iranians some how or other end up causing a problem in the Strait of Hormuz blocking tanker traffic. New ball game. Well over the weekend, I read a news story that told of the Iranians deploying some sort of high powered "drone bomb" in the vacinity of Hormuz!

Bottom line we will never be out of the woods when it comes to energy IMO.

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OPEC knows our cost of drilling is quite costly compared to OPEC'S. With fracking and other new methods the USA is becoming a major player and could surpass other countries in the export of oil. OPEC doesn't want that and they do not what us to build the Keystone pipeline and other projects. That's why OPEC is keeping production levels high and driving down prices. If prices become to low it is not feasible to drill and service the rigs. It might be good for elderly people on fixed incomes that fuel prices are this low but it will hurt us in the long run.

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It will hurt farmers as well all of sudden ethanol production will drop as its cheaper to buy crude grain prices will drop sugar prices will drop as Brazil switch back to sugar its a much bigger picture than most us can comprehend

Paul

And all the people living in small country towns as farmers incomes fall and slow spending in towns

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It will hurt farmers as well all of sudden ethanol production will drop as its cheaper to buy crude grain prices will drop sugar prices will drop as Brazil switch back to sugar its a much bigger picture than most us can comprehend

Paul

And all the people living in small country towns as farmers incomes fall and slow spending in towns

Hope the ethanol is removed!
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Venezuela also is getting hurt by the low prices.

IF the started to pull back on the ethanol, farmers would be able to sell more grain for feed, at a presumably lower cost. This would reduce beef prices as well as other food products. The ethanol mandate made a lot of farmers RICH. The reduced quantity available for food products, caused food prices to jump, as well as the beef prices.

OPEC (Saudi Arabia) wants the fracking to become less cost effective, thus shutting down shale production. That would put them back in the drivers seat for oil production and pricing.

I paid $3.15 for fuel today, and did see a sign for $2.99. Expect to be paying that soon.

BUT, if prices stay low for a while, say into July by forecast, the slightest disturbance in the Gulf of Mexico will cause them to skyrocket

Success is only a stones throw away.................................................................for a Palestinian

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Yes corn related business will suffer, but other areas of ag. will accelerate fertilizer prices will fall due to lower crude prices helping to lower input costs, transportation costs should drop some, feedlot input costs will drop and all this should lower commodity costs, more corn will be available for consumption, lowering food costs yes overall prices should drop but so should our inputs. with much of my stuff my biggest expense if fuel related I think my margins will actually improve!

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Yes corn related business will suffer, but other areas of ag. will accelerate fertilizer prices will fall due to lower crude prices helping to lower input costs, transportation costs should drop some, feedlot input costs will drop and all this should lower commodity costs, more corn will be available for consumption, lowering food costs yes overall prices should drop but so should our inputs. with much of my stuff my biggest expense if fuel related I think my margins will actually improve!

yes all industry will be affected some for good some for bad the problem being if it makes your industry no matter what it is farming transport water air transport better or more profitable and you invest in your business and the price climbs it is reel easy to find ones self over extended AH THE JOYS OF BEEN IN BUSINESS !!!!!!!!!!!!

Paul

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I'm no economics major, but I bet the pricing for shipping will stay up for a while at least til someone starts cutting prices to get more work. Then the bidding war will start.

I don't think the rates will drop, yes there is more freight and you can buy more trucks but there aren't drivers to do this. So because of this the prices of freight most likely will stay or go up because retail will pick up because lower gas prices suppliers ship more but I have seen it that shippers and brokers fighting for trucks to move there freight.

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