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How High Will Price of Diesel Go?

Rising cost of diesel

Rising cost of diesel - 03/08/2011

On December 30th, 2010 I discussed what I considered to be the top five trucking issues to be on the lookout for in 2011.

As we continue into March, there are strong indications that some are already upon us, while others are still slowly building in the background.

Many transportation experts were dealing with the impending loss of tens of thousands of drivers by the enacted CSA, yet thankfully, it never happened.

I did focus on a similar aspect of a short supply of drivers, although I voiced my doubts on the earlier post by commenting: “Although I personally believe that it has been somewhat exaggerated” . . . I’m content in letting 2011 further play out.

In no particular order, the five listed were:

Increased Freight Rates

Lower Supply of Drivers

$4.00 Diesel Price

Higher Demand for Intermodal Operations

NAFTA Negotiation

  • Freight Rates and Intermodal – Although the poor economy will most likely prevent the rate of freight to rise in the double digits, Freight Transportation Research Associates have released a report stating that due to the rising demand of freight, particularly later in the year, motor carriers will have the leverage to raise the current rate for trucking freight.  Furthermore, some trucking companies have already raised their hauling rates as the U. S. trucking industry gears up for possible further rate hikes.  The report also pointed out that intermodal continues to gain share against truckload.
  • NAFTA – An agreement reached by President Obama and Mexico President, Felipe Calderón will finally allow Mexican trucks to operate through out the United States.  The agreement is expected to be signed in May or June, 2011.
  • Lower Supply of Drivers – I still believe that this is an issue that is not a problem for the industry at all, but will let 2011 play out a little longer.
  • $4.00 Diesel Price – With the escalating protests and violence in the Middle East, the price affect of crude oil was a certainty;  with the price of a barrel hitting over $106 earlier in the week, at the time of this writing crude oil is setting at $105.04 per barrel.  Roughly, 55% of the price of crude oil affects the price per gallon of gas or diesel.  However, Libya only makes up 2% of the world’s oil production so the fighting currently taking place in this area of the globe has been fabricated as a reason to raise the price of crude.

Many factors can effect the price we pay at the pump.  Factors such as Wall Street speculators, the value of the USD and even the weather.  I contend that the major cause of the rising cost of crude oil and petroleum products is least effected by the battles in the Middle East, and are more-so by our own U. S. policies.  The current permatorium on offshore drilling is a huge factor but because the Middle East provides a perfect alibi, those who stand most to gain will work to push the price of crude up as high as possible, for as long as possible, before having to bring it back down to Earth.

The largest factor pushing the price of petroleum at the pumps still lies with the economy.  Recent reports showing that 192,000 jobs were gained in February is no reason for celebration.  I will be willing to bet that within a few months, corrected figures will be much lower and a job loss of around 38,000 will be more accurate.  Of course, that depends on if the media will actually report it.   However, let’s just say that the 192,000 figure is correct.   Economists have shown that even if we continue at this rate, it will take seven years for the U. S. employment rate to get back to the levels that they were before 2008.   Seven years.

With the outlook of an improving economy still appearing dim, how high will the price of diesel go?  Crude and Brent Oil prices have reached their highest point since the 2008 hikes and many experts believe that through out 2011, crude will average around $105 per barrel.  In comparison, the price of crude on December 23rd, 2008 was $30.28 per barrel.

In January of 1999, it was only $17.00 per barrel with the highest price ever recorded coming on July 11th, 2008 at $147.27 and on this date, March 8th, 2011 speculators are predicting that crude will rise to over $150.00 per barrel.   I personally do not believe it will reach this limit.

We will obviously see many fluctuations in the price due to the economy and the continuing protests in the Middle East which will not go away any time soon.  Unrest through out the Middle East will last for the next three to five years and that is only if the people achieve the democracy that they are seeking.

As far as the price of diesel, I doubt it will reach a sustained price much higher than the lows $4.00 per gallon mark nationally,  largely due to the fact that the U. S. market could not sustain any price much higher than $100 per barrel.  There could very well be spikes, but maintaining a sustained price is the key factor.

Then again, all it would take is one catastrophe such as military action in Libya or a nation setting fire to the oil fields.  Keep your fingers crossed.

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By: Allen Smith

Allen Smith is a 37 year veteran who started at an early age in a household goods family moving business. He began driving straight trucks in 1977 and moved to the big rigs in 1982. His experience within the industry includes; owner operator, company driver, operations manager, and owner of a long distance HHG moving business, taking many of the long haul moves himself when needed. Allen Smith, a truck driver advocate who is driven by the desire to help others succeed within an industry where injustice, unrewarded sacrifice, and lack of respect and recognition exists. Allen and his wife Donna are hosts of Truth About Trucking ”Live” on Blog Talk Radio. Other websites include AskTheTrucker, TruckingSocialMedia, NorthAmericanTruckingALerts, TruthAboutTrucking, and many Social Media websites. In 2011 Allen and Donna hosted the first Truck Driver Social Media Convention, designed to create unity and solutions for the trucking industry. This is now being extended through the North American Trucking Alerts network as those within the industry join forces for the betterment of the industry. Allen strongly supports other industry advocates who are also stepping up to the plate to help those who share honesty, guidance and direction. He believes that all those involved in trucking need to be accountable for their part within the industry, including drivers, carriers, brokers, shippers, receivers, etc… The list of supporters and likeminded people grow daily, networking together and sharing thoughts and ideas for the betterment of trucking. He has coined the popular phrase "Raising the standards of the trucking industry"

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