In an effort to mitigate dramatic spikes in fuel prices similar to those in 2008, the American Trucking Associations (ATA) has called on Congress to increase the transparency of futures markets and impose reasonable aggregate position limits on energy commodities.
While the price of crude oil is off from summer 2008’s record-high levels, the commodity has seen an inexplicable run-up in price over the past five months. Despite US oil inventories near a 19-year high and oil demand down 6% from a year earlier, the price of crude has more than doubled since February.
“Demand for petroleum products in the United States is lower today than it was 10 years ago, and supply is higher today than it was in 1982,” said Bob Costello, ATA vice-president and chief economist. “In addition, the International Energy Agency recently predicted that global demand for oil will drop by about 2.5 million barrels a day this year compared to last year—the sharpest year-over-year decline in nearly 30 years.”
According to data from the Energy Information Administration (EIA), crude inventories in May were at their highest levels in almost two decades. Based on current levels of demand, commercial petroleum inventories amount to about 60 days’ worth of supply. That’s 12 days more than a year ago, and 11 days more than the five-year average for this time of the year.
The trucking industry spent a record $150.9 billion purchasing diesel fuel in 2008, and with relatively low freight volumes as a result of the global recession, the industry cannot afford a price spike in diesel fuel like the one in 2008. Diesel fuel is typically the second-highest expense for a trucking fleet, accounting for up to 25% of total operating expenses.
Since the price of oil and refined products cannot be fully explained by examining supply and demand, ATA looks to other factors that may be influencing the steep increase.
ATA recognizes that the recent fall in the dollar’s value has played a role in the rising price of oil. Since February, the value of the dollar has fallen approximately 8% versus the Euro. Yet this drop in the dollar does not translate to a 100% increase in the price of a barrel of oil.
Financial participation via speculation in energy markets is necessary to a certain extent. Without speculators, trucking companies could not hedge their fuel purchases and would be even more exposed to fuel price changes. While some speculation is necessary to make a market, excessive speculation may fuel a dramatic price change as large institutions use derivatives and futures contracts as an asset-accumulation tool.