Traffic volumes are also growing
more slowly, after rising sharply
during most of 2015 and 2016,
according to separate estimates from
the Federal Highway Administration
(FHWA). Traffic on U.S. roads was
up by less than 1 percent in the three
months to November compared
with the same period a year earlier,
according to FHWA.
Traffic growth has slowed from a peak
of well over 3 percent per year in the
early part of 2016, shortly after oil prices
hit their lowest point in the current cycle.
Oil prices have been trending higher
for more than two years and are now
within $10 per barrel of their average
real level over the entire of the last cycle.
So while the cost of fuel is not expensive,
it is no longer especially cheap, and the
steady increase in prices has started to
moderate consumption growth.
The nationwide weighted-average
retail price of gasoline was $2.67 per
gallon in January, an increase of more
than 60 cents per gallon compared
with two years previously. If oil
prices continue to climb through the
remainder of this year and into 2019 as
In a research note, Morgan Stanley
analysts said that 70 percent of the
“bunker” fuel burned by ships is
considered “bottom of the barrel” high-
sulfur fuel oil with maximum sulfur
content of 3. 5 percent. The 2020 mandate
will limit the content to 0.5 percent.
As the mandate nears, the market
could see the return of diesel prices to
well over $4 a gallon, Kloza said, raising
the possibility of $4 to $5 a gallon in 2019
and “perhaps even higher in 2020.”
In recent months U.S. diesel prices
at the pump stood at $3.167 a gallon
in mid July, according to the Oil Price
Information Service (OPIS) on behalf
of AAA. Prices averaged $3.09 a gallon
that month, the highest monthly level
since December 2014.
“Prosperity in the global economy
comes with a price, and it can really
manifest itself in diesel or jet fuel
prices,” Kloza said.
But a demand boost from a strong
economy isn’t the only reason for the
three-year high in diesel prices. The
fuel is refined from crude oil, and prices
for crude have also recently climbed to
their highest levels since late 2014.
“As crude-oil prices increase, diesel
prices will, too,” said Jeff Klearman,
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portfolio manager at exchange-traded
funds issuer GraniteShares.
Severe winter weather also raised
demand for heating oil, cutting into
capacity for diesel refining, he said, and
refinery damage from 2017’s Atlantic
hurricanes Harvey and Irma reduced
diesel supply. U.S. stockpiles of distillates,
which include diesel fuel, stood at 114.9
million barrels as of the week ended
on May 11 — the lowest level since
November 2014, according to Energy
Information Administration (EIA) data.
Diesel fuel is used, not surprisingly,
in diesel engines, which can be found
not just in personal vehicles, but
also in shipping trucks, construction
equipment, ocean vessels, trains,
buses and power generators.
“Inflation will permeate the price
of everything that moves over land,
whether by truck or rail,” Kloza said.
“We’ll see more fuel surcharges return,
and this will impact individual truckers,
Within the U.S., about 10.5 billion
tons of freight are transported annually
by truck, requiring almost 39 billion
gallons of diesel fuel, according to the
American Trucking Associations (ATA).
For agriculture, in particular, fuel
costs may appear to play only a small
part overall. Average fuel costs for a
Texas farm amount to about 3 percent
of total costs, said Sal Gilbertie,
president and chief investment officer
at Teucrium Trading.
But the “entire supply chain” —
from farmers to grain processors to
cereal makers to big grocery-store
chains — is directly affected by the
price of diesel, Gilbertie said.
So far, however, demand hasn’t been
hurt by the high diesel price.
“If you can get diesel to the water for
transport via the Gulf of Mexico or an
ocean, the world is your oyster,” Kloza said.
U.S. companies have been suppliers
of diesel for Central and South America,
and Kloza expects “business south of
our border will increase thanks to the
problems that Venezuela state-owned
oil company Petróleos de Venezuela is
having with operating its refineries.”
The country’s oil industry has
suffered from a lack of investment
amid its economic crisis.
Short term, Kloza expects diesel
prices to continue to move higher,
though he admits he doesn’t expect
them to approach the 2008 highs just
yet. Diesel hit a record of $4.845 a
gallon on July 17, 2008.
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