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How the Diesel Price Increase Could Impact Your Business

09/01/2023 02:03

As a business owner, you are no doubt familiar with the constantly fluctuating price of diesel fuel. Unfortunately, the latest news isn't good: the national average for diesel prices has increased for the sixth straight week, up 8.6ยข per gallon.

While this may seem like a small increase, it can have a significant impact on your business, particularly if you rely on diesel fuel for transportation or other operations. The rising cost of diesel fuel can eat into your profits and force you to make difficult decisions about how to allocate funds. This is why it's important to stay informed about the latest trends in fuel prices and understand how they could affect your bottom line.

In this blog post, we'll take a closer look at the recent diesel price increase and explore some of the ways it could impact your business. We'll also offer some tips and strategies for mitigating the effects of rising fuel costs and keeping your trucking business running smoothly. 

What Does the Energy of Information Administration Says

The Energy Information Administration recently released data indicating that the national average for diesel prices has risen by 8.6 cents per gallon, reaching $4.475. This increase marks a significant surge in prices and may have various implications for the transportation and logistics industries.

According to the Energy Information Administration (EIA), diesel prices have increased for six consecutive weeks. Despite this consistent rise, the current cost remains only 64 cents lower compared to last year's cost. The EIA's survey of 10 regions shows that diesel prices have increased across the board, with the highest jump of 17.9 cents per gallon in the West Coast-less-California region and the lowest increase of 1.9 cents per gallon in New England.

Diesel vs. Gasoline Surge

Over the past six weeks, there has been a significant surge in the price of diesel, with an increase of 66.9 cents per gallon. This marks a considerable jump in cost, with prices now reaching levels not seen since the first week of February.

In contrast, the national average cost of a gallon of gasoline has fallen by 5.5 cents, with prices now averaging at $3.813 per gallon. These fluctuations in fuel costs may have an impact on the economy, and it is important for consumers to stay informed on the latest developments.

Insights from the Oil Price Information Service

According to Tom Kloza, founder of the Oil Price Information Service and an expert in the energy industry, the market for gasoline and diesel may diverge in the upcoming months. While gasoline prices are expected to gradually decrease, diesel prices are likely to remain high.

Kloza predicts that the peak for gasoline prices has already passed, but he is concerned about the availability of diesel in the coming months. He notes that there is not enough inventory being built up and a cold winter could exacerbate the situation. This information highlights important considerations for those in the transportation industry who rely on diesel fuel.

From a molecular perspective, there is little difference between diesel fuel and home heating oil. However, given the potential for a cold winter, energy analyst Tom Kloza has expressed concern about a potential hike in prices, particularly in the Northeast and Mid-Atlantic regions of the US.

Despite a steady decline in usage since the late 1970s, the Energy Information Administration (EIA) has reported that over 4.9 million households in the US relied on heating oil during the 2022-2023 winter season, with approximately 82% of those households located in the Northeast.


Status of the Domestic Oil Production

As domestic oil production reaches record levels amidst the ongoing COVID-19 pandemic, the latest price comes at a time of increased output. This is in stark contrast to the sharp decline in drilling that occurred during the pandemic, leading to a 30% drop in gasoline usage - the lowest level since the early 1990s.

According to the EIA, oil production is expected to reach an all-time high of 12.8 million barrels per day in 2021, an increase of 200,000 barrels per day from its previous forecast. Moreover, this growth is expected to continue, with production reaching at least 13.1 million barrels per day by 2024.

EIA Administrator Joe DeCarolis noted that this growth is due to higher oil prices and increased well productivity in the near term. As such, it is expected that domestic oil production will continue to expand in the coming years.

Despite an increase in domestic production, the United States continues to rely heavily on imported oil, accounting for approximately 40% of its consumption. This is partly due to the high demand for oil exceeding the current supply, and also because certain grades of oil from Canada, Mexico, and OPEC nations remain more cost-effective for regional energy suppliers to import.

According to the EIA, gasoline prices are expected to rise to an average of $3.63 per gallon for the remainder of 2023. This forecasted increase is primarily attributed to higher crude oil prices and a series of unplanned refinery outages across the United States during the summer months.

Latest Refinery Shutdown

On August 25, 2023, a fire broke out at the Marathon Petroleum Refinery complex in Garyville, Louisiana, resulting in the partial shutdown of one of the refinery's sections. This unfortunate incident caused a sudden increase in the prices of diesel and gasoline.

The Marathon Petroleum Refinery complex, which is located 36 miles west of New Orleans, is the third-largest facility in the United States. The refinery is capable of processing up to 596,000 barrels of oil per day, producing various products, including gasoline, diesel, jet fuel, asphalt, and plastics. While the company has not yet determined when the damaged section of the refinery can be reopened, they are currently investigating the cause of the fire.

Storm Activities to Watch Out

Kloza and Phil Flynn, an oil analyst at Price Futures Group, are keeping a close eye on the storm activity in the Gulf of Mexico. September marks one of the busiest months for hurricanes, which could have a significant impact on the oil supply. With already limited supplies, any disruption in production could lead to price spikes.

Flynn suggests that the demand destruction caused by the storms could further exacerbate the situation. As such, there is an upward risk to oil prices.

As per Kloza's statement, Hurricane Idalia is anticipated to reach the west coast of Florida and hit land on August 30th, posing a potential threat to demand. Nevertheless, it is predicted to steer clear of Louisiana and Texas, which are vital energy producers and refiners in the United States.

Kloza further added that although Idalia is not estimated to impact oil production, the next hurricane could pose a significant risk to supply should it target any area from Corpus Christi to Mobile. It is worth noting that every hurricane has an adverse impact on demand, while it is rare for a hurricane to disrupt supply.

 In Conclusion

It's important for trucking businesses and general transportation companies to be aware of the potential impact of diesel price increases on their operations. While there are several factors that can influence diesel prices, including supply and demand, geopolitical tensions, and environmental regulations, the bottom line is that fuel costs are a significant expense for any transportation business. Staying informed about market trends and exploring fuel-efficient technologies, such as hybrid or electric vehicles, may help mitigate the impact of diesel price increases in the long run.

As the transportation industry continues to evolve, it's crucial for businesses to be proactive in adapting to these changes to remain competitive and sustainable.

If you want to stay updated with a wide range of trends, actionable insights, and innovative solutions in the trucking, freight, and logistics industry, stay connected to us.

Moreover, are you looking for a company to help you to stay DOT and FMCSA compliant? We at Labworks USA can support you.

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