Do we need someone to slay the Fuel Dragon?
By Timothy Brady
Here we go! Looks like the cost of fuel is on the raise again. In the first few weeks of 2010, we’ve seen the price of diesel increase by as much as fifteen cents per gallon in a single week. The price of a barrel of oil is skirting around that $80 figure again, and from all indications, it’s headed towards a triple-digit amount. But what’s driving this sudden and sizable increase in both the price per barrel and cost per gallon? The obvious answer is: Just look at the weather. When the temperatures in Florida are at the freezing point as far south as Miami, you know the rest of the country is in a deep freeze. Single-digit temperatures on the eastern seaboard means folks are using more heating oil to keep warm. More heating oil production equates to less diesel being refined and the price of diesel increases.

The Energy Information Administration (EIA) is predicting a steep rise in diesel fuel prices this year and next; boosting its fuel price projections for the year. On-highway diesel fuel retail prices, which averaged $2.46 per gallon in 2009, should average $2.98 per gallon this year and $3.14 in 2011. Moreover, keep in mind the government usually is conservative with their fuel price estimates, which translates to $2.98 and $3.14 are at the low end of what we can expect. The reasons for this give that fuel dragon multiple heads:  

1. What’s going to happen in the Middle East is anybody’s guess.
2. How cold and for what period of time will the next two winters be? The “Old Farmers Almanac” is predicting a very hard and cold 2010 winter, and at present, I don’t think anyone would argue with this.
3. What direction is the world economy going to head and at what pace? If the Chinese and Indian economies begin improving at an accelerated rate, more cars will be sold and more energy as oil and gasoline will be required.
4. And then there’s the hurricane season for the Gulf of Mexico. We’ve experienced what effect a Category 3 or higher storm has on oil production as they shut down Gulf oil operations. Another catastrophic storm like Katrina could put oil at unprecedented levels, which would gravely impact trucking’s recovery.
5. And finally, the uncertainties about the U.S. dollar, the frailty of the global recovery, the movement toward alternative fuels; and most importantly, the ever-expanding amount of leveraged money in futures and options markets, are all factors which will contribute to the rise and/or fall in fuel prices.

Added to this, the problem which caused the increase to near $150 per barrel oil in mid-2008—oil speculation. Federal regulators on January 14, 2010 took a step towards holding speculation in check by proposing new limits on trading in energy futures by Wall Street firms and other market players. The problem for this winter season is that the proposal is open to public comment for 90 days, meaning speculators are operating under the same rules that caused the warp-speed rise in oil prices in 2008.

In the next post I’ll provide some actionable plans for dealing with this fuel cost increase problem.

Good roads and great loads, everyone.
Timothy D. Brady  ©2010
www.truckersu.com