Look out. Summer is upon us. It seems like no matter what political factors are at play, fuel prices invariably rise with the temperatures, even more so in the Northwest. Experts at AAA warn consumers to expect price increases that started in May to continue into the summer. Why? There are many international, national and regional factors at play on the fluctuation of fuel prices.
Refinery maintenance
“In the PNW, refineries in Anacortes supply most of our fuel,” explains Nate Woodbury, Director of Pricing and Analysis at Carson. “Typically refineries conduct general maintenance and overall quality and environmental reviews in the spring before switching to more expensive summer-blend gasoline.” When refineries are in maintenance or turn-around, it creates a tighter market temporarily which impacts availability and demand, driving up prices.
Summer fuel restrictions
Some areas, including the Oregon Valley, a lower Reid Vapor Pressure (RVP) is required during the summertime. The EPA regulates the RVP of gasoline during the summer ozone season (June 1 to September 15) to reduce evaporative emissions from gasoline that contribute to ground-level ozone and diminish the effects of ozone-related health problems. Above 7.8 RVP gasoline is considered high in Oregon’s Attainment Zones. This goes into effect to offset a larger amount of vehicles on the road during the summer months. “Suppliers are required to provide low-RVP fuel during this time, or the fines can be high. But, for companies maintaining their own tanks, compliance falls on the company,” warns Woodbury. Suppliers like Carson automatically change their customer’s fuel to the appropriate RVP to protect against unnecessary investigations, or fees associated with a site that is out of compliance.
Summer fuel demands
Every year between May and September there is always a lot more people on the road, so the tension between supply and demand drives up fuel costs. Nationally, the U.S. Energy Information Administration (EIA) expects highway travel to increase 1.3 percent over last summer. Combined with projections of higher crude oil prices, Monthly average gasoline prices are forecast to reach a summer peak of $2.97/gal in June, before falling to $2.86/gal in September. Kiplinger reports projections for diesel to go up significantly, with a national average of $3.19/gal.
International factors
Crude oil is a volatile market in the best of times, but uncertainty surrounding OPEC extending production cuts and the US position on Iran, the tension between fact and rumor is driving market fluctuation. Gasbuddy’s Fuel Price Outlook for 2018 explains: “… OPEC’s decision in November 2016 to cut oil production…curbed excess supply and began soaking up brimming global inventories of crude oil, at the same time boosting oil prices, which was the major reason for OPEC’s decision. In addition, some non-OPEC countries agreed to reign in production to tighten markets as 2017 wore on, and as the year wraps up, oil prices have flirted with $60 per barrel. U.S. oil inventories are poised to begin 2018 nearly 50 million barrels lower than where they started the year. In addition, exports of crude oil and refined products have risen to record levels since restrictions were lifted in December 2015, contributing to less supply as exports rise.” Overall, fuel is expected to rise another six percent in 2018.
Environmental factors
“Nobody can predict with 100 percent accuracy where fuel prices will go. But the market does accurately account for rumors that have reliable strength. What causes big swings in the market or changes to long-term trends? These generally have to do with unexpected news and its influence on supply and demand projections.,” said Woodbury. Environmental factors like hurricanes can have an unexpected effect on crude oil production. In the US, the world’s second-largest producer of crude, those supplies are located in an ever-more-frequent hurricane zone. “Experts are estimating 10-18 storms will move through the Gulf this season with up to five potential hurricanes,” explained Woodbury. “Natural disasters and unexpected events continue to cause problems to global supply expectations but will likely have even more of an impact this year.”
Don’t predict – protect
“Although nobody can see the future, you can still protect yourself and your business,” advises Woodbury. With fuel costs accounting for as much as 60 percent of a fleet’s operating budget, leaving cost to chance doesn’t make for good business. “When fuel costs are going up, everyone has to pay more for things that use fuel – not just the transportation sector. If you’re not protecting yourself from those increases, it rolls down to the customer. Make sure you can operate your business in today’s market.”
Carson offers customers custom programs and incentives to stabilize fuel expenditures season to season. Contact us at 503.224.8500 to find out more about how a fuel cardlock program with Carson can benefit your business.
Strategies for offsetting summer fuel hikes
- Cardlock systems: When assigned to a vehicle, not to a driver, these systems reduce fuel theft and a host of unnecessary expenditures.
- Fuel purchasing policy: Combine a fuel policy with your cardlock system for even more control over your fuel costs.
- Right-sizing vehicles: Use the lowest weight, lowest cost, most fuel-efficient vehicle for the appropriate job application.
- Fuel-efficient vehicles
- Fleet management software: Modify idling RPMs, limit the maximum speed a vehicle can reach, and optimize transmission shift points.
- Driver scorecard program: Help employees identify their unsafe driving habits, including habits that lead to excess fuel consumption. Incentivize with awards for reaching a fuel reduction target.
- Supplier agreements: Protect against volatility and rising pricing through fuel pre-purchasing, or upfront percentage payments. Carson offers our customers a variety of custom programs and incentives to achieve a more stabilized cost environment.