Let's take a look at what has been going on with fuel. At the writing of this article crude was over $85 a barrel. Diesel fuel prices were at their highest levels since November 2008. OPEC is still playing around about any further increases in production. They will increase fuel production, but it will come a few months too late. OPEC's view is better to be late and make more money than early and not cash in. Remember for most of these countries oil is their economy.
The Energy Information Administration is still holding to their $81 a barrel prediction for crude the rest of this year. I don't know if you recall but their track record in recent years for pricing has not been very good. I have more confidence in companies like Morgan Stanley who seem to be more in tune than the government. The government still plays 8 track tapes compared to Morgan's with the latest iPod. Oh, I forgot to mention that the outward months for trading of crude oil are in the high $80s, so that market believes it's going to be higher.
At least three weather services have forecasted a bad year for hurricanes. With the weather we have had over the last five months in the Northeast and other parts of the country, nothing really surprises me on that end. What I do know is our country's fuel infrastructure is not what it used to be. I heard an economist talk a few weeks ago and he explained why we don't need the refineries we once had because of technology. What he failed to explain to the crowd was if you have 300 refineries and one goes down with issues or turnaround, which happens twice a year, it's not that big of a deal. When you have the same number of gallons being produced now by less than 150 refineries and one goes down, it puts a real strain on the system.
Now, let's look at some of the other things being thrown at diesel fuel prices. How about state mandates for biofuel? Easy if you have the biofuel right in your backyard, not so easy if you have to put it in a railcar and ship it to be blended. Let's not forget that for the past four months there has been no blender's credit of a dollar per gallon for biofuels, so that has caused the industry to stall. That industry is just at its beginning, and starts and stops don't help the overall production of the product. No $1 tax credit, some of which gets passed down to the end user of biofuel, which certainly would make the bio blends more attractively priced. Without that credit and with more local bio mandates in place, coming fuel prices will increase.
I am not here to predict gloom and doom about diesel fuel prices, but I do believe we will have a crude awakening during the rest of this year and next. Higher crude oil prices mean higher diesel fuel prices and certainly higher gas prices, so none of that is good for any of us. But the facts are the facts. I don't know if you have to run out and buy fuel insurance/hedges because the outward months are high.
If you're not a client here is my elevator of facts to you why you should be a client:
* Oil is trading at an 18-month high just under $85 a barrel
* Refinery utilization is at 80 percent compared to 2008 when it was at 90 percent and diesel fuel was $4.76
* 7 percent of all fuel invoices have mistakes
* From March 2009 to March 2010 diesel fuel prices increased 96 cents
* Experts are predicting 18 named storms during hurricane season this year
* OPEC just met and showed no signs of increasing production
* Oil is traded on the NYMEX in U.S. dollar; the dollar is not in a strong position and looks to get weaker as we borrow more money to fund health care and other projects. This means it is cheaper for other countries to buy oil.
* 2 percent of your diesel fuel budget is lost to theft; 4 percent of your gas budget is lost to theft, most of it is internal (your people stealing from you)
* Speculators like to trade hard when the U.S. dollar is weak as a natural hedge against inflation; this happened in 2008 when oil prices went to $147 a barrel
* China reported April 1 that their economy is growing its fastest since 2004. They will need more oil to handle that demand
* DEF and biofuel will change your fuel buying; do you have time to keep up?
* Over the last year according to the DOE, two refineries have shut down and several smaller plants have been idled; it would take a period of time to bring them back up
* Morgan Stanley projects close to $100 a barrel by the end of the year
* U.S. economy is recovering which will increase demand for diesel fuel
Enjoy your day. Watch your step; it's time to go create some more money saving fuel strategies for our clients, before it's too late.
Glen Sokolis is president of Sokolis Group, a nationwide fuel management and fuel consulting company, www.FuelManagementSokolisGroup.com. You can reach him at [email protected] or (267) 482-6160.
Previous installments of "Friday Fuel:"
* "Successful Fuel Management Program Equals Discipline", 9-11-09
* "Who's Watching Your Fuel Program," 9-18-09
* "Fleet Fuel Margins: Are You Paying Too Much?" 9-25-09
* "How Do You Audit Your Fleet Fuel Invoices?" 10-2-09
* "Fleet Fuel Price Negotiating: Details, Details", 10-9-09
* "Mobile On-Site Fueling", 10-16-09
* "The Bees Are Still Buzzing: Handling Fuel on a Daily Basis", 10-23-09
* "Fleet Fuel Card Shopping", 10-30-09
* "Is Your Fuel Management Ready for Winter?", 11-6-09
* "Don't Let the Weather Freeze Your Deliveries", 11-13-09
* "Fuel Management or Fuel Inventory? That is the Question", 11-20-09
* "Put Your Fleet Fueling Policy in Place For 2010, Part I", 12-4-09
* "Put Your Fleet Fueling Policy in Place For 2010, Part II", 12-11-09
* "Be Safe, Not Sorry With Fuel Management During the Holidays", 12-18-09
* "Looking Back: 2009 Fuel Management in Review", 12-23-2009