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ATA offers suggestions to mitigate dramatic spikes in fuel prices

ARLINGTON, Va. – In an effort to mitigate dramatic spikes in fuel prices similar to those in 2008, the American Trucking Associations (ATA) today called on Congress to increase the  transparency of futures markets and impose reasonable aggregate position limits on energy commodities.

“Since March, the price of diesel has risen 56 cents per gallon despite supplies being at a historical high and diesel demand at a nine-year low,” ATA President and CEO Bill Graves said. “It seems that more is at play than just the fundamentals of supply and demand.”

While the price of crude oil is off from last summer’s record-high levels, the commodity has seen a dramatic and inexplicable run-up in price over the past five months, ATA officials said, noting that despite U.S. oil inventories near a 19-year high and oil demand down 6 percent 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,” ATA Vice President and Chief Economist Bob Costello said. “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 last year and with relatively low freight volumes as a result of the global recession, the industry cannot afford a dramatic price spike in diesel fuel like the one in 2008, the ATA said.

Diesel fuel is typically the second-highest expense for a trucking fleet, accounting for up to 25 percent 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 in this vital energy commodity.

“While we don’t believe excessive speculation accounts for all of the recent run-up in oil prices, it has to have played a part,” ATA Vice President and Regulatory Affairs Counsel Richard Moskowitz said. “ATA is concerned that speculation may be increasing, as investors seek investments that can insulate them from anticipated inflation that many believe is coming as a result of the U.S. and other governments’ massive economic stimulus packages.”

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 percent compared to the Euro, Graves noted, adding that yet this 8 percent drop in the dollar does not translate to a 100 percent increase in the price of a barrel of oil.

Financial participation via speculation in energy markets is necessary to a certain extent, the ATA said.

“Without speculators, trucking companies could not hedge their fuel purchases and would be even more exposed to fuel price changes,” Graves said. 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.”

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