No diesel price relief expected for trucking companies in 2008
Feb 14, 2008 10:13 AM
The Department of Energy (DOE) continues to project diesel prices to be higher in 2008 than last year due to higher average crude oil prices, which means carriers can expect to face average prices of $3-plus per gallon.
According to the DOE short-term energy report updated monthly, diesel prices, which averaged $2.88 per gallon in 2007, are projected to average $3.21 and $3.08 per gallon, respectively, in 2008 and 2009.
Meanwhile, based on current weather projections and forecasts of an economic slowdown this year, distillate fuel consumption growth is projected to slow from 1.5 percent in 2007 to 0.8 percent in 2008 before accelerating to 1.6 percent in 2009.
The overall petroleum outlook over the next two years points to an easing of the oil market balance in 2008. Higher production outside of the Organization of the Petroleum Exporting Countries (OPEC) and planned additions to OPEC capacity should more than offset expected moderate world oil demand growth and relieve some of the tightness in the market, according to the DOE report.
Surplus production capacity is projected to grow from its current level and the balance suggests some price softening, although delays or downward revisions in capacity additions in both OPEC and non-OPEC nations could alter the outlook, as could OPEC production decisions.
At the same time, total US petroleum consumption is expected to increase while real gross domestic product (GDP) is expected to grow. If economic growth in 2008 is less than expected, petroleum consumption would also likely be lower than projected.
Despite prospects for slower oil consumption growth, DOE expects market fundamentals to remain relatively tight in the first half of 2008, as evidenced by the low level of surplus production capacity.
Looking beyond the first half of 2008, EIA projects surplus production capacity will grow and prices may ease, reflecting slower consumption growth, fairly flat OPEC crude oil production, and production capacity increases in both OPEC and non-OPEC nations.
In addition to geopolitical factors, the main upside price risks for the remainder of the year include possible OPEC production restraint, delays in adding new oil production capacity, and stronger-than-expected economic growth. There is also significant downside price potential if a larger-than-expected slowdown in the world economy leads to lower oil consumption growth than is currently expected.
As for non-OPEC supply, Brazil is expected to account for the largest share of the expected gain in non-OPEC supply in 2008. A number of countries are expected to experience declining oil production, such as the United Kingdom, Mexico, and Norway. The pace and timing of non-OPEC supply growth will continue to be subject to possible delays in key projects. Recent history has shown that non-OPEC capacity growth projections often fall short of expectations, according to the report.
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