If you read last month's feature article we talked about all of the negative things that were happening that we believe will cause fleet fuel prices to go up throughout the rest of the year. In addition, the economy is strengthening, construction is increasing and there has been upward movement in manufacturing. I can tell you that most of our clients and other companies we have had conversations with have seen an upturn in demand--more miles, more fleet fuel and a great demand.
Let's take a look at what has been going on with fuel. At the writing of this article crude was over $85 a barrel. Diesel fuel prices were at their highest levels since November 2008. OPEC is still playing around about any further increases in production. They will increase fuel production, but it will come a few months too late. OPEC's view is better to be late and make more money than early and not cash in. Remember for most of these countries oil is their economy.
The Energy Information Administration is still holding to their $81 a barrel prediction for crude the rest of this year. I don't know if you recall but their track record in recent years for pricing has not been very good. I have more confidence in companies like Morgan Stanley who seem to be more in tune than the government. The government still plays 8 track tapes compared to Morgan's with the latest iPod. Oh, I forgot to mention that the outward months for trading of crude oil are in the high $80s, so that market believes it's going to be higher.
At least three weather services have forecasted a bad year for hurricanes. With the weather we have had over the last five months in the Northeast and other parts of the country, nothing really surprises me on that end. What I do know is our country's fuel infrastructure is not what it used to be. I heard an economist talk a few weeks ago and he explained why we don't need the refineries we once had because of technology. What he failed to explain to the crowd was if you have 300 refineries and one goes down with issues or turnaround, which happens twice a year, it's not that big of a deal. When you have the same number of gallons being produced now by less than 150 refineries and one goes down, it puts a real strain on the system.
Now, let's look at some of the other things being thrown at diesel fuel prices. How about state mandates for biofuel? Easy if you have the biofuel right in your backyard, not so easy if you have to put it in a railcar and ship it to be blended. Let's not forget that for the past four months there has been no blender's credit of a dollar per gallon for biofuels, so that has caused the industry to stall. That industry is just at its beginning, and starts and stops don't help the overall production of the product. No $1 tax credit, some of which gets passed down to the end user of biofuel, which certainly would make the bio blends more attractively priced. Without that credit and with more local bio mandates in place, coming fuel prices will increase.
I am not here to predict gloom and doom about diesel fuel prices, but I do believe we will have a crude awakening during the rest of this year and next. Higher crude oil prices mean higher diesel fuel prices and certainly higher gas prices, so none of that is good for any of us. But the facts are the facts. I don't know if you have to run out and buy fuel insurance/hedges because the outward months are high.
If you're not a client here is my elevator of facts to you why you should be a client:
Enjoy your day. Watch your step; it's time to go create some more money saving fuel strategies for our clients, before it's too late.
In fleet fueling there are many ways your employees can steal fuel from you. Most companies truly believe, it can’t happen to me. There theory is we have someone that spot checks that information sometimes. Our drivers make good money they would never risk losing their jobs. Why would anyone want to steal from us, we take care of our employees. When it comes to fleet fuel the fuel is liquid cash when it comes to stealing. Everyone would like to believe they know their employees well enough to think that person won’t steal but it happen.
Glen Sokolis is president of Sokolis Group, a nationwide fuel management and fuel consulting company, www.FuelManagementSokolisGroup.com. You can reach him at gsokolis@sokolisgroup.com or (267) 482-6160.
We aren't going to say that just yet. But Congress has sure made it difficult for that market. As most of you know, the $1 a gallon tax credit went away at the end of 2009. The credit expired at the end of 2009 and virtually shut down the industry, says the American Soybean Association. Roughly 11 percent of U.S. soybean oil is used in making the biofuel, which is a bolster for soybean prices.
What is interesting about all of this is the House and Senate have passed bills to renew the credit for 2010, now they must agree on a common text to send to the president. "Neither the House or Senate has signaled any particulars on how they will do that," said Michael Frohlich of the National Biodiesel Board, a trade group.
Our Congress, not agreeing with each other? Who would have thought that could happen? It wasn't that long ago that the $787 billion federal stimulus package last year included $79 billion for renewable energy. In January, President Barack Obama awarded $2.3 billion of that money in tax credits to renewable energy companies.
The tax credit is one provision in a $149 billion bill focused on job creation and extension of tax incentives. Remember these are the jobs that are supposed to help get the economy going. Right now the bio industry is having a hard time getting your fleet of trucks moving without the tax incentive. Like most new programs, this one needs a little boost from Uncle Sam to get off the ground.
I believe Congress knows that it is important, but don't expect to see anything soon. Why? Springbreak! Yes, resolution is unlikely before mid-April, said two biofuel officials. Congress soon will recess until April 13th, they noted, and a final vote on the credit could be delayed until late April or later, depending on the pace of House-Senate negotiations. It would be a nice thought if it were to pass on or right before Earth Day (April 24, 2010).
We have all been sold on how wonderful biodiesel is, and I am not arguing. It just reminds me of someone pulling a chair out from under you when you go to sit down. Biodiesel production is forecast at 800 million gallons this year as federal mandates require minimum amounts of the fuel to be mixed into diesel by blenders and refiners.
In addition, revival of the tax credit would be retroactive to Jan. 1, which adds some incentive to make the fuel, only if the tax credit is retroactive and I believe it will be. But isn't that a pain? The industry has, for at least four months, been turned on the side of its head. Then we have retroactive tax credits, but I don't think they are going trickle down to the trucking side of the world. If you paid for fleet fuel without the tax incentive in it, it would be hard to believe they would let you credit that back. We never say never though, since crazier things have happened with Congress.
Let's stop the talk about green jobs and doing something about it. Don't let tax incentives that are important to a new and growing industry just die. Biodiesel burns cleaner, it's American made, it has more lubricity in it to help with Ultra Low Sulfur diesel, it creates jobs, etc. Let's get our fleet fuel programs running again with biodiesel.