Fueling Prices Up or Down?

The answer is yes. Now let me explain what I mean by that. Four weeks ago we saw crude oil prices plunge from $113 to $97 a barrel followed by a drop in diesel fuel prices at the pump, and in bulk fueling or mobile fueling where your company has a fixed margin over a benchmark price. Gasoline pump prices took a bit longer to go down, but they did, if only just a little bit. Then, as we check prices again now, crude oil is back up to $100 a barrel. So, what gives? Let’s talk about barrel vs. pump prices first. As I have mentioned time and time again, a $1 drop in barrel prices for crude oil usually translates to a 2 to 3 cent drop in diesel fuel or gas prices at the pump. So, since barrel crude oil has averaged a $13 drop in prices lately, diesel fuel prices at the pump should be at least 26 cents – maybe 39 cents, cheaper a gallon. If you follow the DOE National diesel fuel prices that are reported weekly, you noticed that on May 2, 2011 diesel was at its peak of $4.12 a gallon. Today, on June 3, just one month later, as I sit and write this, the DOE National diesel fuel price is down to $3.94. Which means you should see an 18-cents per gallon savings in our fleet fueling costs. But, it sure takes a long time for decreases in barrel pricing to get to the pump and actually realized as fuel cost savings on your bottom line.

When next week’s DOE fuel figures are posted on June 6, I expect lower crude prices and hopefully a bit more savings at the pump. After that, the $100 a barrel question is, “Where exactly will crude oil prices go?” Well, wherever they go, diesel fuel prices are sure to follow. And, economic data the past several weeks has not been pretty. I wouldn’t call it terrible, but it’s certainly not showing signs of an upward economic recovery.

Therefore, I ask again, why are crude oil prices staying around $100 a barrel? Perhaps because the Bulls are beating the Bears and this isn’t a football game. Crude oil is traded in U.S. dollars, so when the U.S. dollar is strong it puts pressure on oil prices to go lower. When the U.S. dollar is weak, like it has been, (just look at our elected officials trying to balance a budget) crude oil prices go up.

Ok, now don’t throw your arms up yet. Keep reading. The HSBC came out with a report that says Saudi Arabia needs crude oil prices around $90 a barrel to help meet their country’s financial demands, and to continue to have oil as a dominate energy. See, the Saudi’s don’t want electric cars or natural gas trucks. Why would they? They produce oil. They make a lot of money with oil.

OPEC will meet on June 8, just a few days away, to decide if they should increase the output of crude oil, and ease some pressure on the global supply. But, before the meetings begin, many of the delegates from the OPEC countries are speaking out and expressing their view point of view. “There is a need for an increase in production to replace the loss of supply from Libya,” the delegate said. “Oil prices are too high; $100 oil is scaring people.”

Saudi Arabian Oil Minister Ali al-Naimi waded into the debate, noting that OPEC is ready to raise production to meet any increased demand.

I’m not a gambling man, especially when it comes to betting on what other people are going to do, but I am going to roll the dice and say crude oil prices will be down at $85 to $89 a barrel by mid July. And yes, expect gas prices to fall another 30 cents and diesel fuel prices to do the same. They just won’t fall as quickly as the crude oil. Even if lady luck is not on our side, keep in mind, that regardless of what fuel costs are and wherever they may go, up AND down, the best way to save money on your fleet fuel is to call Sokolis Group.

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