Chris Bortz has seen the cost of gasoline for his car drop by almost half since June. The price of diesel used by his construction business has lagged behind.
That’s about to change as sliding farm demand after the U.S. harvest and milder weather brings diesel, nearly identical to heating oil, more in line with gasoline. Government forecasts show the fuel dropping to $2.73 a gallon by June. The average retail price slipped below $3 this week for the first time in four years.
Diesel’s drop will aid everyone from truckers to industrial users such as Bortz, CEO of Batavia, Ohio-based Towne Construction Services, which uses 300,000 gallons of diesel a year. Haulers have cut fuel surcharges to shippers, lowering the cost of delivering two-thirds of retail goods in the United States.
“Truckers are going to love this,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone Jan. 12. “They’re finally getting their share of the energy revolution, and it’s been a long time coming.”
Gasoline has tumbled 43% since June 25, averaging $2.168 a gallon Jan. 8. That compares with a 24% decline in diesel. About half of that drop has come in past month, according to AAA, the Heathrow, Florida-based motoring club. The fuel fell 1.5 cents a gallon Jan. 13 to $2.972, AAA data show.
“November came in colder than initially expected, which put upward pressure on diesel prices and prevented them from falling at the same rate as gasoline,” Hannah Breul, an industry economist at the Energy Information Administration in Washington, said by e-mail Jan. 15. “The rest of the winter looks relatively in line with the 10-year historical average. We’ve seen retail diesel prices fall sharply in recent weeks.”
Seasonal refinery maintenance in the spring and forecasts for cold weather in some parts of the United States may slow diesel’s descent. Average temperatures across the upper Midwest, including Chicago, may sink 3 degrees to 5 degrees Fahrenheit (about 2 to 3 Celsius) below normal from Jan. 24 to Jan. 28, according to Commodity Weather Group in Bethesda, Maryland.
Residential heating oil prices averaged $2.907 a gallon in the week ended Jan. 12, the lowest since October 2010 and 27% below year-earlier levels, an EIA survey of heating fuel suppliers shows.
Trucking lines already have cut fuel surcharges to customers, Bob Costello, chief economist for American Trucking Associations, said by telephone from Arlington, Virginia, last month. Adjustments to these charges are based on weekly surveys published by EIA that show diesel prices down almost 37 cents a gallon in the past month.
“Fuel is our No. 1 expense, ahead of what we pay drivers, so we’d love to see a bigger drop,” Costello said. “It would be nice if diesel would actually catch up,” to gasoline.
It’s too soon to tell whether the fuel savings will translate into lower retail prices for consumer goods, Jeff Lenard, a spokesman for Alexandria, Virginia-based Association for Convenience and Fuel Retailing, said by telephone Jan. 13.
“There has to be some certainty on whether this is the new norm before you’ll notice it across the board at the retail level,” Lenard said.
The shrinking surcharges may give truckers what they need to raise freight rates and cover the rising costs of regulation, health care and wages. About 59% of carriers surveyed said they expect driver pay raises to translate into higher rates, a Jan. 8 Bloomberg Intelligence analysis shows.
The savings that freight shipper TCW Inc. has seen at the pump so far helped the closely held Nashville, Tennessee-based company cap its most profitable year in 2014, TCW President David Manning said. The company has been cutting fuel surcharges to customers and increased drivers’ wages for the third time within a year, Manning said by telephone Jan. 15.
Bortz, 41, of Towne Construction, said he’d pour any fuel savings back into his company to pay down long-term debt, hire more operators and buy more bulldozers and excavators.
“It’s this big-ticket item for us every month,” he said by telephone Jan. 12. “I keep thinking, ‘It’s coming. Here comes the windfall.’ And it hasn’t come yet.”
