SCDigest Editorial Staff

The News: Despite a big spike in oil and diesel fuel costs in 2006, we ended December on a significant downturn, leading to year end prices that were slightly lower than where the year began.

The Impact: The lower year end prices are the goods news. The bad news is that significant volatility in oil and resulting diesel prices is likely to continue, making logistics budgeting and master planning especially difficult.

The Story: Oil futures and spot market diesel fuel prices were on a bit of a rollercoaster in 2006, starting the year on a still somewhat high note after the Katrina-driven surge of late 2005, peaking again in late summer on turmoil and concern in the Middle East, then dropping significantly towards year end as tensions waned to some extent, and new supply coming on line helped better balance supply and demand.

The chart below shows the wholesale price of diesel fuel in the U.S. east cost area during 2006. Retail prices, adding the retailer mark-up, would obviously be higher, but mirror the overall wholesale trend.

2006 began with wholesale diesel at $1.80 per gallon, with prices staying relatively flat until late March, when they began a steady rise that reached a wholesale peak of $2.38/gallon the first week of August – a 32% rise from the beginning of the year.

By late August, however, diesel prices started to decline, ending the year at their lowest wholesale price of the year at $1.66 per gallon. This represents a 30% drop from the peak price, and a modest 8% drop from the start of 2006.

Predictions for 2007 are all over the map, but with many predicting slower economic activity slowing demand growth, and OPEC feeling pressure to keep prices modest to thwart alternative energy initiatives, as has happened in the past.

What’s your take on energy and diesel prices in 2006? What do you expect in 2007? Let us know your thoughts.