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High Diesel Prices Change Driving Habits

BOISE, ID (AP) - Until recently, Bill Larsen, 81, filled up his 1985 turbocharged Mercedes diesel sedan at a Boise convenience store where the friendly female cashier would teach him a new word in Spanish each time he came in, then trade him a hug for a car wash.

Two weeks ago, Larsen decided that he would have to forgo the language lessons, hugs and washes.

“ When I paid $4.16 a gallon for diesel, and it almost cost me $60, I decided I couldn’t afford it anymore,” said Larsen, who promptly drove the Mercedes home, parked it in his garage and covered it with a tarp.

He hasn’t driven it since, even though it gets 35 miles to the gallon. Instead, he’s opted for a 1999 Ford F-150 pickup that gets only 16 miles to the gallon but is cheaper to fill at the then average price in Idaho of $3.30 a gallon for self-service regular, according to AAA Idaho statistics. The pickup may cost more to run, but Larsen’s rejection of high-cost diesel is a matter of principle.

“ I buy (gasoline) at Maverik stations now because it’s cheaper,” he said. “But out where my daughter lives, diesel (at a Shell station near Lake Hazel in southwest Boise) is crowding $4.30 now.”

Fuelgaugereport.com, which tracks motor fuel prices at 80,000 stations nationwide, recently reported that diesel fuel costs were averaging $4.16 a gallon, a 41 percent increase from $2.96 a year ago. Diesel has climbed 15 percent in a month. By comparison, Idaho’s average price of $3.30 for self-service regular gasoline is up 25 percent in the last year and 5 percent in the last month.

Industry experts blame the diesel run-up on a 2006 federal mandate requiring low-sulfur diesel in motor vehicles and on rising U.S. exports to European markets, where an estimated 60 percent of all vehicles are diesel-powered. Adding to the price pressure are farms that almost exclusively use diesel-powered equipment and are gearing up for their spring planting season.

Economic observers say skyrocketing diesel prices have done more than persuade some motorists to stop driving diesel vehicles. The effects can be seen throughout the economy, as higher transportation costs affect food and other prices.

The higher prices are the equivalent of a “hidden tax” on consumers, who have less money to spend on other things, hurting an Idaho economy that is already slowing noticeably, said Boise economist John Church.

“ It’s squeezing everybody,” Church said. “And I can only see prices going higher as the summer driving season approaches. That will increase demand and drive prices for (diesel) even higher.”

Church said businesses formerly tried to hold the line on prices when fuel costs began rising in hopes of protecting their market share. But with crude hovering near $100 a barrel, that’s not likely to be the case this time, he said.
“ You get to a point where you just can’t absorb these kind of price increases,” Church said.

Motorists aren’t the only ones suffering.

“ It has been a challenge,” said Charley Jones, co-owner of 25 Stinker Stations in the Treasure Valley. “We’re losing market share by just trying to maintain a profit. We’ve been on an allocation all year and have had to bring diesel in by rail. Five years ago nobody had to do that.”

Being on allocation means Jones can buy only so much diesel fuel from wholesalers at a time, which requires that he find other sources and the means to transport the fuel to his Idaho stations.

Paul Patterson, an extension agricultural economist at the University of Idaho, said farm equipment runs almost exclusively on diesel fuel, so a springtime spike in prices is not unusual.

Industry experts say the expensive Environmental Protection Agency mandate has also driven up diesel costs. The EPA requires that refiners produce diesel fuel with lower sulfur content. Leonard Herr of the Idaho Department of Environmental Quality said diesel fuel emissions have been linked to lung cancer in humans and to acid rain.

“ We had to invest millions in new equipment,” said Dan Johnson, a spokesman for Chevron, which ships most of the motor fuels consumed in Idaho via its pipeline out of Salt Lake City.

Owner Jake Owens of Jake Owens Transportation of Tampa said the trucking industry is getting battered on two sides: the price of diesel is rising at a time when a “stagnant economy” has reduced the amount of freight the industry is being asked to haul.

A year ago, when diesel was selling for about $3 a gallon in Idaho, it cost Owens $600 to $800 every two days to fill the 300-gallon tanks on the two trucks he uses to transport construction equipment throughout the Northwest. At today’s price, his diesel costs have jumped to $900 to $950 every two days.

Conway Freight, which operates a fleet of 8,400 trucks nationwide - including 18 at its Boise shipping center - has responded by adopting the findings of a study performed by John Deere Transportation Services.

The study found that reducing a diesel-powered trucker speed from 65 miles per hour to 62 miles per hour will save $1,000 in diesel fuel costs per vehicle per year, said interim manager Josh Kovarik.

The high prices and stalled economy mean fewer trucks carrying freight on highways, Kovarik said.

Today, however, observers say exports to Europe and to countries with expanding economies are major price factors.

Tom Kloza, chief oil analyst with the Oil Price Information Service, said the U.S. in recent months has been exporting between 300,000 and 500,000 barrels of diesel fuel a day to Europe, where most vehicles are diesel-powered. In exchange, European nations have been sending about 1 million barrels a day of surplus gasoline. And more diesel is being shipped to nations with expanding economies, he added.

“ The simple matter is that the rest of the world has been willing to pay more for diesel than the U.S. has, and refiners have exported to Europe, southeast Asia, and South America,” Kloza said. “That’s why they export excess gasoline to the U.S. But that also means that those tankers have been coming back to Europe with American diesel on board.”

However, with world economies facing possible recession, it’s possible that overseas demand for diesel could begin to slow, resulting in a drop in U.S. diesel prices, Kloza said.

“ If the Chinese economy has grown too rapidly and sees a severe correction or implosion, that would translate into a huge downdraft in global diesel prices, much more so than with gasoline,” he said. “I do think that we’ve seen the high in diesel prices in the U.S., unless there are some ‘events’ - hurricanes, geopolitical disruptions, multiple refinery fires, etc.

“ But then again, I didn’t anticipate that we’d get to $110-to-$112 crude prices without any of these elements. The market has a capacity to inflict pain beyond anything in our predictave capability.”

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