For the past few months, we’ve all been watching the price of crude oil decline rapidly. Even when you start to think it’s going to stabilize and can’t go much lower, it goes down even further. As I write this article, a barrel of crude is now trading in the high $40’s which is less than half of where it peaked during 2014.
Fleet Managers, CFO’s, CEO’s along with just about everyone else may be so happy with the lower fuel prices, that they might not even realize they are not getting their full share of the savings. Simple math says that every $42 decline in the price of a barrel should result in a $1 decrease for the largest cost component of a gallon of fuel. Since crude has actually fallen by more than $50, it seems reasonable to expect that we’d see at least that $1 per gallon decline in the price at the pump. But, that hasn’t been happening; at least not for diesel fuel.
According to the historical data reported by the U.S. Energy Information Administration, the current average retail price of gasoline has actually fallen by close to $1/gallon compared to its 2014 peak. It’s a different story for diesel fuel which has only fallen by about 60 cents from its peak. Fuel taxes are different for gasoline and diesel, but they are generally fixed per gallon and the changes that have occurred over the past year are not enough to explain the discrepancy.
So, now you may be asking, “Where’s the rest of my diesel fuel savings?” The answer may be as simple as “In your fuel suppliers’ bank account.” Further proof is provided by the unprecedented growth in rack-to-retail spreads, as they are known in the industry, which are tracked and reported by the Oil Price Information Service (OPIS). These spreads represent the difference in the wholesale price of fuel compared to the retail price in many areas throughout the U.S. Typically, the average spread for diesel fuel hovers around 30 cents, and now it’s grown to more than triple that amount in many areas of the country.
There may be a number of reasons why the price of gasoline has fallen faster than diesel fuel. Some experts believe it is because diesel fuel and heating oil are essentially the same and there is greater demand for heating oil at this time of year. The flaw with that theory is that wholesale prices for diesel fuel have actually fallen much more significantly than retail.
Perhaps the reason diesel fuel retail prices have not fallen as fast as gasoline is because gasoline consumers are much more price sensitive and a greater proportion of consumption is discretionary, like deciding to take a family vacation road trip over the holidays. Alternatively, for businesses with fleets of vehicles that depend on diesel fuel, drivers may not care as much about the price of fuel since the company pays the bill. In addition, a business’ decision to run a scheduled route is more about survival and less about the price of fuel. Retailers could be taking advantage of these circumstances.
You may be happy with the price you’re currently paying for fuel because it’s much less than last year, and probably a lot less than what you budgeted just a couple months ago, but don’t be complacent. You could probably be saving even more. Get in touch with the experts at Sokolis Group and we’ll help make sure you get your full share of fuel savings.