What can be done about diesel fuel prices?

Dateline: Terry, Montana, U.S.
July 4, 2009

The big holiday and vacation season is once again upon us. Canada and the U.S. just celebrated their respective national birthdays and all eyes in our industry are being kept on whether consumer confidence has re-instilled itself.

Diesel fuel is one of the most critical commodities in keeping the Canadian and U.S. economies rolling. In our transportation and construction industries almost all aspects of operations are fueled by diesel engines. Rising diesel fuel prices can translate to increasing costs of products and services. In order to know what can be done to slow down this increase, you as a consumer need to be aware of its causes and find creative ways to save money on your fuel usage.

There are several basic elements that determine the worth of a gallon of diesel. About fifty-five percent of the cost of diesel reflects the price of crude oil, which is raw material for diesel production. Crude oil is brought from the oil fields to the refineries where the ultra-low sulfur diesel, among other petroleum products, is extracted.

Given a barrel of crude is 42 gallons; the average refinery is able to produce about 8 gallons of diesel and jet fuel or 20 % of the total. About half of the barrel is made into gasoline with the remainder in low end bunker fuel oils and other petroleum products. Refining accounts for nearly fifteen percent of diesel fuel cost.

The remaining elements of the cost of diesel fuel are government taxes and the expense of advertising and delivery. A ten percent excise tax is levied onto all fuel products that are refined in Canada. Although foreign fuel can avoid this tax, it is generally cheaper to buy locally refined fuel as import taxes generally are passed along to the consumer. Marketing and distribution make up about five percent of total diesel fuel cost, but this can often be the most volatile factor affecting the value of diesel fuel.

This is where the diesel fuel consumers may have a sure fire way to save money on their cost for operating their diesel trucks and equipment. They can make arrangements with an on-site fueling company like 4Refuel headquartered in Langley BC, Canada. They currently service most of the Canadian market and recently expanded into the U.S. West Coast market by opening an office in Lynnwood, Washington serving the Greater Seattle area.

Saving fuel and lowering consumption is not only good for the environment; it decreases demand, and ultimately your cost. The factors that affect diesel fuel prices seem complex, but an understanding of the basic principles can empower the individual consumer to make the right decisions.

Bob van der Valk resides in Terry, Montana and is the Fuel-pricing Analyst with 4Refuel LLC in Lynnwood, Washington. He can be contacted at (971) 678-2975 or e-mail him at: bvan@4refuel.com

Oklahoma Attorney General says BP/Arco manipulates gasoline prices

Dateline: Terry, Montana
June 27, 2009 6:00 AM MDT

Nationally the average price for regular unleaded gasoline is $2.658 down about 3 cents per gallon from a week ago. Montana's gasoline prices have leveled off at $2.72 with California staying high at $3.01 per gallon. Hawaii gets the prize for the highest cost for gasoline at $3.09 per gallon in the AAA fuelgauge.report. The gasoline spot market price meanwhile has dropped by 20 cents per gallon in the last two weeks but retail pump prices have not reacted in kind and are not expected to drop much more before the end of next week.

Pump prices have barely budged with the spot market gasoline and diesel prices going down another 2-3 cents per gallon at the end of this week. The August WTI crude oil price decreased $1.07 to just above $69.16 a barrel on Friday

Big industry news was published in the Oklahoma Daily Journal on Friday that State Attorney General Drew Edmondson had filed a lawsuit against BP/Arco (BPL). He is accusing them of gaming the price of gasoline and crude oil since 2002. This alleged scheme had previously been brought to the attention of the Federal Trade Commission but Edmondson claims to have found fresh evidence that BP was able to manipulate gas prices by hoarding short-term motor fuel and crude oil supplies.

The Federal Trade Commission (FTC) investigated those same allegations in 2006. At that time, BP/Arco was suspected of manipulating the petroleum market by controlling the physical West Texas Intermediate (WTI) crude oil inventory at the Cushing, Oklahoma terminal. They have since divested some of those assets but they are still dominant in trading WTI at the Cushing terminal.

The initial investigation into trading practices between oil companies was called for by Congress in the wake of the huge gasoline and fuel price spikes, which occurred in the aftermath of the Rita and Katrina hurricanes. Those storms ended up hitting refinery complex located on the U.S. Gulf Coast in August and September of 2005. Extensive damage was incurred to those refineries and interrupted the supply of crude oil, finished fuels and lubricating oils to the market.

The oil companies were absolved of any wrong doing by the FTC in the "Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases” published in the spring of 2006. That report concluded that normal supply and demand market forces were the reasons for the price variances in the petroleum markets.

AG Drew Edmondson has announced his intentions to be a candidate for Governor in Oklahoma in 2010. That announcement and the filing of the lawsuit against BP/Arco were coincidentally made on June 10, 2009. Any outcome of this lawsuit will definitely also have an effect on the upcoming election in crude oil rich Oklahoma.

Bob van der Valk is the Director of US Branded Licensing with 4Refuel Inc. in Lynnwood, Washington and can be contacted at (971) 678-2975 or by email at: tridemoil@aol.com

Bob’s web site address is: www.4vqp.com/ourconsultants/thegasguy.html