Features International News — 21 May 2018

Diesel prices in the USA have jumped 22 per cent from this time last year ago and stand at their highest level in almost four years.

The average price of diesel fuel in the USA reached $AUD4.30 per US gallon ($AUD1.13 per litre) last week, up from $AUD3.30  (87 cents Aust per litre) a year ago according to the latest U.S. Energy Information Administration fuel pricing report.

Clearly this is driving higher business costs for many US businesses.

Diesel prices are expected to continue their climb and could hit $AUD4.60 per US gallon by the end of 2018 according to industry analysts.

According to one analyst, Phil Flynn of Price Futures, the demand for diesel has been through the roof globally, partially because the economy has been going gangbusters all over the world.

Diesel prices have risen for eight consecutive weeks, according to the Energy Information Agency.

Shippers are picking up the tab because there is more freight needing to be moved than there are available trucks. For every truck it is estimated that there are 6.6 loads of freight needing to be moved. A year ago that ratio was more like were 3.5 loads per truck.

The larger imbalance this year gives truck drivers and carriers the ability to negotiate higher fuel surcharges to cover rising expenses.

Carriers are charging customers a fuel surcharge of 41 Aust cents per mile, up from 31 Aust cents a year earlier. Meanwhile the spot trucking rates for a standard trailer have risen 29 per cent to $AUD2.40 per mile from a year ago.

“With the economy as strong as it is, transport companies still have a lot of pricing power because shippers want to move their goods,” Phil Flynn said.

“The only people that really don’t like higher fuel prices are shippers and consumers, who will have to pay more for a pair of jeans at the store,” he said.

Truck operators are adapting to higher fuel costs by investing in more fuel-efficient trucks and aerodynamic trailers to increase their mileage.

While the national average fuel economy for semi-trucks is about 2.7km/litre (6.5 miles per US gallon) some fuel conscious operators are now recording around 4.2km/litre (10miles per US gallon) because of a renewed focus on fuel efficiency. US trucks also operate at much lower weight limits  of around 36 tonnes.

Analysts believe that if the US national average was around 4.2km/litre the US industry would save $AUD31 billion and 36 billion litres of diesel fuel annually, according to the North American Council for Freight Efficiency.

In the USA oerators are adapting relatively low tech ideas such as covered wheels, trailer aerodynamics and low-rolling resistance tyres to save fuel. The adoption of automated manual transmissions has also increased fuel efficiency, according to NACFE.

There are varying views among industry and government analysts as to how much higher oil and fuel prices will rise.

U.S. West Texas Intermediate surged beyond $AUD94 per barrel last week, putting prices at a three-year high.

Phil Flynn said oil could hit $111 per barrel this year.

The Energy Information Agency forecast pegs West Texas Intermediate crude at an average $AUD87 per barrel this year, up from $AUD67 in 2017. The price per barrel is expected to fall to $81 in 2019, the EIA said.

Higher prices are leading to increased U.S. crude oil production. Oil companies are expected to extract an average of 10.7 million barrels per day this year, up 12 per cent from 9.4 million barrels produced daily in 2017.

Excess inventories of stored oil around the world are now at their lowest level in more than three years after the OPEC, and Russia cut production back following a glut of oil that drove down prices.

Drillers in the U.S. are responding. The number of rigs in the U.S. has jumped 15 per cent in 2018. Texas, which has the majority of oil rigs in the U.S has seen a 14 per cent jump this year.

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