SPECIAL REPORT: Record winter diesel prices feared

| 8/22/2003

The recent electricity blackout will dominate energy news for some time, along with unpredictable events such as the pipeline break that has brought about massive fuel shortages in Arizona.

But what appears predictable, and represents the biggest concern for truckdrivers and other energy users in coming months, will be the high cost of oil and fuels, the Kiplinger Letter recently reported.

According to Kiplinger, the price of oil per barrel will remain at about $30 because of renewed unrest in Nigeria and Venezuela, extensive damage to Iraq's oil-producing infrastructure and problems with a key Russian pipeline that will crimp crude supplies until spring 2004 at the earliest.

Meanwhile, the U.S. Energy Information Administration said in a recent report that oil imports from Venezuela to the United States in June fell by 10 percent compared with May.

"I think the trend of lower U.S. imports of Venezuelan crude will deepen in the coming months," said Herman Franssen, president of consulting firm and Washington-based International Energy Associates, as reported by Dow Jones.

Moreover, unpredictable politics in much of the oil-exporting world is likely to keep the price outlook volatile well into next year.

All one need do is look to California, where diesel prices are typically the highest in the nation.

"We have 42 drivers, and they probably (collectively) drive over 10,000 miles a day," John Vlasic, owner of Best Delivery LLC, Rancho Cucamonga, CA, said. "We normally spend $6,000 to $7,000 a month on gas and diesel fuel – and that's not counting the reimbursements we pay to drivers who use their own vehicles."

But recent fuel hikes have boosted that $7,000 monthly outlay to about $9,000. Best Delivery's 24-foot bobtail trucks run on diesel fuel – two months ago, drivers could fuel up for $1.40 a gallon, but now the cheapest price they can find is $1.69 a gallon, Vlasic told Redlands Daily Facts.com.

Meanwhile, heating oil is likely to sell for around $2 a gallon for most of the winter – double last winter's price, since refiners have concentrated on meeting motor fuel needs and let stocks run low, Kiplinger reported.

And that worries truckers the most.

"If heating oil is selling for $2 a gallon, truckers operating in those areas are likely to see diesel at $2.50 a gallon or higher," said Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association. "And any kind of a disruption can send fuel prices skyrocketing over the country. 

"Lawmakers in Washington have been slow to address the price volatility that has wreaked havoc on truckers over the past three years.  They should move ahead with fuel surcharge legislation for truckers. The last thing our fragile economy needs is more truck repossessions."

The gathering storm

The supply picture got worse this summer, Kiplinger reported.

That's due to Iraqi oil production equipment that was looted after the war, meaning the country probably won't return to its prewar output level of 2.5 million barrels a day until mid-2004. In addition, renewed civil violence in Nigeria is giving oil traders fits about a possible export disruption, and the market learned recently that Venezuela is exporting only a fraction of the oil it had previously claimed.

Russia is increasing production, but exports are crimped by pipeline problems, and a target repair date has been pushed back from summer to fall.

On the demand side, the Bush administration is adding at least 100,000 barrels a month to the Strategic Petroleum Reserve, while a reviving U.S. economy is also boosting oil needs.

However, OPEC seems happy with $30-a-barrel oil, Kiplinger reports, despite the cartel's pledge to keep prices between $22 and $28.

"Many [OPEC] member countries are nearly broke and want to get as much money out of the market for however long they can," says Richard Baxter, an energy analyst with the Energy Storage Council, an industry group. That means OPEC isn't likely to hike members' output quotas anytime soon.

--by Dick Larsen, senior editor

Dick Larsen can be reached at dlarsen@landlinemag.com.