Expect diesel to stay around $4 a gallon, says energy expert

Global Insight's Mary Novak says don't expect diesel prices to go down any time soon.

By DOROTHY COX
The Trucker Staff

5/13/2008

WALTHAM, Mass. — The future doesn’t bode well for fuel prices, with diesel expected to hover around $4 a gallon for the rest of the year and probably well into 2009, says one energy expert.

The U.S. has to bid on diesel in a global marketplace when diesel is in short supply, driving up the price, said Mary Novak, managing director of North American energy services for Waltham, Mass.-based Global Insight.

And, even if OPEC nations were to increase their output, what they have in increased supplies is of poor quality and there aren’t enough refineries in the Asia-Pacific region to handle the poor crude, she told The Trucker today.

To make matters worse, U.S. currency is constantly deteriorating so speculators are moving to other commodities to trade, including gold, silver and oil.

Demand must slow down to bring down the price of oil and consequently the price of diesel, so that a “cushion” of surplus is built back up, but that’s unlikely to happen any time soon, said Novak.

At present, industrialized nations are heavy consumers of diesel, as are emerging nations such as India and China, where governments are subsidizing oil prices. Gradually, she said, as diesel prices continue to be high, the Chinese and Indian governments won’t be able to afford to continue their subsidies. Then the populace of those two countries won’t be able to afford diesel, driving down prices somewhat.

But it won’t happen overnight, and Novak said she expects $4.30-a-gallon diesel to continue for at least the next three months, and it could go higher.

Her outlook for 2009 diesel prices wasn’t much better: “We may see a little bit of reduction but not enough to be significant,” she said.

The most diesel-per-gallon could come down would be to about $3.75, Novak predicted, and then she said it probably would head back to the $4-a-gallon mark.

She said it’s not just consumers who are feeling the pinch at the pump and on grocery shelves. The economy is pressuring the price increases to be absorbed by the manufacturer and every step along the supply chain.

Read more in the June 1-14 print edition of The Trucker.