Commentary by Glen Sokolis, Sokolis Group
What is going on with diesel fuel prices? Let me try to give you my 2 cents – but please don’t shoot the messenger.
I am sure you have all been reading or hearing about the price of crude oil on its way to $100 and above and diesel fuel and gas prices headed to over $4 a gallon. We hear the same things here at Sokolis Group and honestly don’t know where the price of fuel will go.
Following the crude oil market every day and trying to determine which way it is going to go is like picking a stock like Apple (AAPL) that traded on January 29, 2010 at $190.25 and closed the year at $330.20. Great deal if you picked it, but connecting the dots backwards is always easier than connecting them forward.
Here is our view – and I will be the first one to tell you that it has changed over the past two months.
We always believe that the Department of Energy’s forecast is usually conservative in how high they think fuel prices will go. As recently as Nov. 9, 2010, the DOE said national gas prices would be $2.84 and diesel fuel prices would be $3.09 this winter. When that report came out, national gas prices were $2.832 and national diesel fuel prices were $3.116, so they must have figured prices were going to go down to meet their winter projections. The national price for gas last week was $3.052 and diesel fuel was $3.331. They still might be right. The market could crash – but I don’t think it will.
The Wall Street Journal, CNBC, Fox Business – they all talk about $100 crude oil. There is almost an excitement about it. Why, I don’t know. I don’t like paying any more for gas in my car than you do for your car or your fleet. There was an article this week in CNBC that said yes, $100 oil, but not a surge like we all saw in 2008. They made good points.
On the other hand, oil company CEOs have said just the opposite. Case in point, Joe Petrowski, CEO of Gulf Oil, thinks there is a 25 percent chance that by the end of May crude oil prices will be $150. Gulf Oil sells fuel downstream at gas stations, so high prices do not serve his company well.
China is trying to control its inflation, but oil consumption is expected to increase by 5 percent there in 2011 over record 2010 numbers. U.S. gas demand has been flat the last couple of years, but diesel fuel has continued to grow even in a slower economy.
We think crude oil will pass $100 a barrel sometime by mid February. This will boost the national cost for diesel fuel close to $3.50. It would not be surprising to see crude prices go to $115 and then back off and settle in the high $90 a barrel or $100 a barrel range. Basically for each $1 a barrel crude oil increase, diesel fuel increases 2 to 3 cents per gallon. For gasoline, it’s 1 to 2 cents per gallon.
It is not our intent to scare anyone, but to try and keep everyone informed to the best of our knowledge. We are a fuel management company, not a fuel forecasting company, but I hope we are able to at least add a little insight. Please visit our blog for updates.
Glen Sokolis is president of Sokolis Group, a nationwide fuel management and fuel consulting company, www.FuelManagementSokolisGroup.com. You can reach him at email@example.com or (267) 482-6160.
Recent installments of “Friday Fuel:”
* “Happy New Year, Diesel Fuel Prices!” 12/30/2010.
* “Bad Fleet Fuel Auditing,” 11/5/2010
* “Fleet Management and Fuel Savings,” 10/1/2010.
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