BUSINESSES PASS ALONG INCREASE
The Arizona Republic (Phoenix)
A surging tide in oil prices helped push Arizona’s average cost for a gallon of diesel to a record $3.22 Tuesday and continues to buoy gasoline prices that should sink this time of year.
Businesses that make their living on the road are passing along the mounting costs as oil products command more of their budgets.
Adjusted for inflation, oil prices are near the record set in 1980 of $38 per barrel, which would be $96.15 now as calculated by the U.S. Department of Labor.
Oil closed at $90.38 Tuesday.
Those prices eventually hit everything that moves by truck with Arizona diesel running 23 percent, or 60 cents per gallon, ahead of prices a year ago.
That includes the 10 to 15 diesel trucks that Phoenix-based Dircks Moving, Logistics and Real Estate operates daily. The company adjusts a fuel surcharge to compensate for the fluctuating price for interstate moves, but competition has kept Dircks from updating the surcharge for local moves.
“The housing market is down, so the moving business is down,” President Chip Dircks said. “We haven’t adjusted rates because of the soft market.”
Diesel prices normally rise in winter because diesel is similar to heating oil, which comes into higher demand. So the oil run-up is a double hit.
“It’s definitely worse,” Dircks said. “Diesel used to be cheaper than gas.”
Phoenix-based Swift Transportation Co. Inc., with about 17,900 trucks hauling goods for major retailers like Wal-Mart and Target, also can pass on some rising fuel costs to customers through surcharges but has to absorb certain fuel expenses, Vice President Dave Berry said.
“Our biggest concern about the cost of fuel is the impact on our customers and their customers,” he said.
The company tries to save fuel by reducing idling time and by buying fuel-efficient equipment to cut the costs of travel between pickups and of running motors while drivers sleep to keep the air running. The company can’t recoup those costs through surcharges, he said.
No break at pump
The rise also is denying Arizona drivers a gas-price reduction when demand and prices usually give them a break following the heavy summer driving season. A gallon of regular averaged $2.73 in the Phoenix-Mesa area Tuesday, according to AAA Arizona and the Oil Price Information Service.
“Last year, the average price of gasoline in Arizona fell by 50 cents between Labor Day and the third week in October. This year, we’ve only seen (about) a 2-cent drop within that same period,” said Linda Gorman, public affairs manager for AAA Arizona. “As long as crude costs remain high, it is unlikely that we will see pump prices fall as they typically do this time of year.”
Gas prices remain below the records set in September 2005, but diesel’s average of $3.21-$3.25 set records Tuesday from the West Valley to the East Valley, according to the service, with the Phoenix-Mesa average settling at $3.22. The previous state record of $3.17 set Oct. 20, 2005, first was broken on Oct. 24 this year and has risen since.
Everything from fighting in northern Iraq to the faltering U.S. currency has been blamed for the high prices. Industry critics also complain that energy speculators are more to blame than the oil supply.
“Speculators in largely unregulated futures markets are using any excuse, from bad weather in Mexico to a dip in U.S. oil supplies, to drive crude oil toward $100,” said Judy Dugan, research director of Foundation for Taxpayer and Consumer Rights and its OilWatchdog.org project.
She said the number of $100 call options for December oil, essentially wagers that oil will cost more than $100 a barrel by then, allowing option-holders to buy at that price and sell for a profit, show that “gamblers” are driving the market.
The foundation wants more regulation of energy trading and supply.
“Electricity is regulated in most places,” she said. “It has kept profits of utilities at a level that is modest but certain enough for investors. While it doesn’t suppress prices overall, what it does is tie the price to the raw material with only a modest profit, which avoids some of the speculation by power producers.”
The Federal Reserve meeting today could fuel the frenzy if interest rates are lowered again, said analyst Phil Flynn with Alaron Futures and Options. September’s half-point rate cut sparked interest in oil, he said.
“The Fed gave a green light to buy all commodities and put them on sale for the rest of the world as the Fed attempted to save the economy from a housing bubble and may have created a little commodity bubble in its place,” Flynn said in a daily energy briefing.
“One bubble to another is a good strategy because the Fed knows a little about how to fight a little commodity price inflation but also because it shows that the Fed feels that the strong parts of the economy not affected by housing can withstand these higher prices.”
Refiners play catch-up
Refiners said they are tired of taking the blame for rising costs and the industry is doing what it can to meet demand.
“You’ve got a number of policy makers saying refineries need to expand capacity and, on the other hand, saying that in 10 years we need to reduce gas consumption,” said Bill Holbrook, communications director for the National Refiners and Petrochemical Association in Washington, D.C.
The industry also takes a lot of heat for not building a new refinery in the U.S. since 1976, but he said that it is difficult to site new facilities and that the existing refineries constantly add capacity.
“And they love to throw out the number of profits,” Holbrook said. “Without profits, we’re not making upgrades, whether environmental upgrades or capacity, and we’re doing a lot of them.”
Profits also help with maintenance, which was the problem in the spring when fuel prices last spiked. Refiners were catching up on maintenance after repairing infrastructure damaged by Hurricanes Katrina and Rita, he said.
“In the spring, capacity was maybe 88 to 89 percent, and typically it’s 93 to 95 (percent),” he said. “We get criticized if we are only operating at 90 percent capacity.”
RISING COSTS: The cost of oil per barrel is nearing its highest-rate ever when adjusted for inflation.
BUSINESS COSTS: Companies struggle to recover fuel costs due to stiff competition in a tight market
PERSONAL COSTS: Arizona drivers are not seeing prices decrease the way they did last year at this time.