Analyzing Future Rising Fuel Costs

Came across this very informative article by Scott McCollister at TransCore Freight Solutions and felt it was definitely worth sharing!  It's easy for us in the freight industry to see just how much the cost of fuel can effect the economy because transportation companies are forced to pass the increasing cost of fuel on to our customers - businesses and manufacturers, causing a chain reaction. When the cost of fuel goes up, the cost of everything people buy at retail stores goes up. It's important we keep a close eye on this impactful economic issue.

2011 in the Rear View Mirror: Fuel Costs Rise 28%

The national average price for diesel in 2011 was $3.84 per gallon, up 28% from the 2010 average of $2.99. Even the low price for 2011 was not all that low compared to the previous year. In the first week of January 2011, the national average price was “only” $3.33 per gallon at the pump. By early May, fuel prices hit a high of $4.12, bringing the average for the second quarter to $4.01.

The Road Ahead: U.S. Energy Dept. Predicts Price Stability, Others See Increases in 2012

Not much change is expected in the next two years, according to the Short-Term Energy Outlook published by the U.S. Energy Information Administration. The agency’s 2012 prediction is almost unchanged, and a 2% increase is forecast for 2013.

Other observers expect prices to increase in 2012. According to the Oil Price Information Service, fuel prices have increased in 11 of the past 12 years, and 2012 already appears to be following that pattern. The average price for diesel was up by $0.50 at the start of this year, to $3.83, compared to $3.33 for the same week in 2011 (see graph, below.) Equally discouraging, OPIS shows wholesale diesel prices on an upward trend since late December, so a retail price increase seems imminent.

While the U.S. is developing new energy sources, questions about refinery capacity may limit domestic supply. Also on the supply side, uncertainty about the Middle East could drive up prices even if the Straits of Hormuz remain open. Demand, on the other hand, can be affected by economic growth or stagnation, politics and regulations, fuel efficient engines, changes in the weather, and any number of factors in addition to price.

For more predictions and analyses of the many factors affecting fuel prices, I looked at the OPIS Transportation Fuel Index, which offers some solid information in four pages of text and charts. For macroeconomic trends, look at Offshore Magazine for an analysis of global trends in supply and demand of petroleum. Spoiler: that writer predicts that oil prices will stabilize at $98/bbl for the first half of 2012.

Diesel prices were up $0.50 at the pump during the first week of January 2012, compared to the same week in 2011.