According to the US Department of Energy diesel prices have dropped again, for the 27th straight week to an average of $2.66 a gallon. Compared to a year ago, when the price per gallon was $1.18 more, it seems we have hit a prolonged reprieve from fuel cost woes. It wasn’t long ago that we we’re accustomed to fuel surcharges and seeking alternative fuels like CNG, hydrogen, and dimethyl ether (DME).
Now experts are predicting $2.00 gasoline by the end of the year, with diesel prices close to that number.
It was simply a matter of excess supply and less than expected demand for fuel that resulted in the lowering of prices. The economies of Europe and China have not experienced the growth that was anticipated. Combined with Americans driving less and using ride sharing more, it stood to reason more fuel was being refined than being used.
This also comes at a time when our technologies for oil extraction from the northern plains is producing more domestic oil than many thought possible, as well as OPEC’s desire to push competitors out of the world market by pumping more and dumping an ‘glut’ on the world market. Added with Iran about to enter the world market again with possibly 30 million gallons of crude in storage and capacity to deliver 800,000 barrels a day, it stands to reason that the strategies from the oil producing nations will continue to keep prices low for consumers on a global scale for the near future.
Experts are now predicting that the price per barrel for crude oil will remain below $50 for the remainder of the year, and beyond. North America will benefit greatly from the lower prices at the pump and hopefully this will spur greater manufacturing and transportation related jobs.
How will this affect fleet owners, OTR owner/operators, and small businesses? Essentially, as the prices drop at the pump, the retailer’s margins become larger. Historically is hasn’t been much. In 2008 when the price per gallon for gasoline was $4.11, the average fuel retailer netted .9% profit. This was due to consumer’s need to ‘shop’ for the best fuel price, thereby driving competition between fuel retailers, according to the 2013 Retail Fuels Report by NACS, the Association for Convenience and Fuel Retailing. Now in 2015, as the price per gallon drops, fuel retailers are experiencing a 3.0% profit margin, since consumers are less likely to drive out of their way for refueling.
As a result of the consumer mentality, fuel retailers are now more than ever attempting to ‘brand’ their product and develop customer loyalty programs in an effort to secure your recurring purchase habits.
For those fleet owners, OTR owner/operators, and small businesses…they can expect to be courted heavily from ‘brand’ fuel retailers to secure that recurring purchase habit. Be wary, often the attraction to sign up for a fuel card from these companies is countered with short term bonus periods, minimum or maximum gallon limitations, and excess service fees. Also, you’ll then be limited to visiting those stations to get your ‘deal’, which is often not a deal when you must drive to a retailer not on your route. Sound advice is to understand the needs and nature of your business, examine how, when, and where fuel is currently purchased, and compare that to a ‘brand’ fuel card. Shop around for other fuel card programs, which will likely benefit your company’s bottom line when you consider the universal acceptance, rebates, and discounts that are normally afforded to a fleet fuel card. Look out for minimum or maximum fuel windows and monthly service or ‘card’ fees. All of these generate income for the card company at your expense.