Monday, June 22, 2009

How Does Rising Diesel Costs Affect Trucking and Manufacturing??

This week's article talks about the rising price of Diesel and how it is affecting and how it is anticipated to affect trucking and manufacturing.

This article is from the Wall Street Journal.


By ANA CAMPOY
Diesel prices are rising again after having fallen below those of gasoline in recent weeks, piling more financial pressure on recession-stricken manufacturers and truckers.

Prices for crude oil and the gamut of petroleum products have been rising, in part because traders expect an economic recovery to boost demand and in part because fuels look like a good hedge against widely expected monetary inflation and a weak dollar.

Oil prices rose 0.8% Wednesday to $71.03 a barrel as new federal data showed demand for gasoline rising. Gasoline prices have risen for seven weeks in a row, further squeezing cash-strapped consumers.

Long-haul truckers and others who use diesel are benefiting from a slight price advantage over gasoline, largely because diesel demand is at a nine-year low. U.S. consumption of diesel and similar fuels plunged 17% last week from the same period last year, weekly government data show. Supplies are at a historic high.

Retail diesel prices have climbed more than 14% over the past month to a national average of $2.61 a gallon, according to the auto club AAA. That still trails gasoline prices, which jumped 16% in the same period to an average $2.68 for a gallon of regular unleaded.

In many parts of the world, diesel is used to fuel manufacturing plants and the trucks that transport their products. Its prices are mostly tied to the fate of the global economy, currently in a severe downturn. In the U.S., the number of tons hauled by trucking companies dropped 13% in April from the same month last year to its lowest level since November 2001, according to an index compiled by the American Trucking Associations, an industry trade group.

If the economy strengthens, fuel prices will likely continue to climb in coming months, analysts say, potentially stalling out a budding recovery. That is what Freeport, Ohio, truck driver Lewie Pugh fears. Mr. Pugh said activity at many of his usual delivery spots -- chemical plants and paper and steel mills -- is at a virtual standstill. His business is half what it was last year.

"I don't see anything picking up, and fuel prices are just going to make it worse," said Mr. Pugh as he drove a load of water-treatment chemicals to an oil refinery near Philadelphia.

One consolation for truckers is that diesel prices remain considerably lower than last year. Diesel hit an all-time high of $4.85 a gallon last July as refiners struggled to keep up with brisk global demand for the fuel. Gasoline prices topped out at $4.11 a gallon the same month.

In China, diesel consumption grew slightly in April compared with a double-digit drop at the end of 2008, said Paul Ting, whose research firm Paul Ting Energy Vision LLC specializes in tracking Chinese energy consumption.

But even if rapid demand growth in developing countries resumes, analysts say it is unlikely diesel prices will shoot up to last year's levels because refiners have added capacity to produce larger amounts of the fuel since then.

—Russell Gold contributed to this article.
Write to Ana Campoy at ana.campoy@dowjones.com

For a link to this Wall Street Journal Article, go to http://online.wsj.com/article/SB124527903046125013.html?mod=googlenews_wsj

2 comments:

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