The bottom line is this: I’m a diesel fuel price geek. Understanding this stuff is how I make my living. As I was preparing to write my annual projections on diesel fuel prices, I started to wonder, is there any trend that no one is talking about?
The Energy Information Administration (EIA) projected 2014 diesel fuel prices to be $3.77 a gallon, but that was only a month after they predicted diesel fuel would be $3.73 a gallon. I’m guessing the EIA will most likely be wrong on both figures.
Why? Diesel fuel is not going to take a flat line and just stay and ride $3.90 a gallon, then all of a sudden drop 13 or 17 cents and stay there.
Here are the facts:
Since 2005 the smallest gap between the monthly high and monthly low for diesel fuel was 27.2 cents per gallon, and that just occurred last year. We all remember the largest gap, which happened in 2008, when the monthly high price was $4.703 a gallon in July and the monthly low price was $2.449 per gallon in December — a whopping $2.25 per gallon difference.
If you take out 2013’s low gap swing for diesel fuel of 27.2 cents and also take out the high gap year in 2008 of $2.449, the average is still a shocking 69.8 cents per gallon swing!
Has volatility stabilized? It is true that the last four years have all been below the gap swing average for the last 10 years.
If you take out the monthly diesel high over the decade, you will still find that the current year’s low is still higher than the previous year low with just a couple of anomalies.
With all of these data points, let me bring this back to simple terms:
1. International needs for diesel fuel
2. Increase in diesel fuel taxes for cash-strapped states
3. Possible federal tax hike, since there has not been one since 1993.
My prediction is 2014’s price gap is going to be almost 55 cents. I’m projecting swings as high as $4.10 to $4.15 a gallon to lows of around $3.50 to $3.60 a gallon. I’m not as optimistic as the EIA for diesel fuel prices. I think as an average for the year, across the whole country, diesel fuel will average $3.85 a gallon.
It sounds simple but what a wild ride it will be.
Editor’s Note: Glen Sokolis, president and founder of the Sokolis Group, has been involved in the transportation industry for more than three decades. His organization is among the leading fuel management and consulting companies in the nation, constantly developing proprietary, cutting-edge software to survey the fleet fuel market and find the best cost-saving solutions for its customers. This blog first appeared at www.sokolisgroup.com/blog.