Oil companies profit as diesel goes through the roof

By: Jason Whittaker


Despite claims oil companies are already making more than they should off the price of diesel, the trucking industry will

Despite claims oil companies are already making more than they should off the price of diesel, the trucking industry will feel the pinch after crude oil hit an all-time record of $US108 a barrel this week.

General Manager of FUELtrac Geoff Trotter says the latest price rise means companies can expect a six cents per litre increase in the price of diesel come next week.

And in more bad news for operators, Trotter expects the price to keep climbing as a result of a weak US dollar and the decision of the Organisation of the Petroleum Exporting Countries (OPEC) not to increase oil production to meet demand.

"Diesel is just going to jump through the roof," he says. "OPEC’s decision has basically underpinned the most recent $7 a barrel rise that’s occurred in the crude price."

But Trotter questioned the profits oil companies are making on diesel, citing the major difference between it and the cost of unleaded fuel. He says companies are making a gross profit of more than 20 cents on diesel per litre but as little as nine cents a litre on unleaded.

"In terms of what is a legitimate price, what we can say is that they are making extraordinary high profits on diesel," he says.

As such, Trotter says businesses with ample storage facilities should "negotiate what’s called a bulk delivered wholesale price", which means trucking operators will only need to pay one of the three profit margins oil companies stick on the price of fuel.

"It is linked directly to the Singapore refined product price," he says.

"The oil companies will still have the refinery margins but they will have foregone their wholesale and retail margins."br>

Furthermore, operators should negotiate this on a month-by month basis, according to Trotter. By doing so, companies with large facilities can store as much diesel as possible, meaning once another month comes around bringing with it a price hike, companies will have enough diesel stored to cut down on fuel costs.

Trotter says companies receiving the bulk price are given notice of an increase in costs, meaning they can take advantage of lower-priced diesel.

"They get seven days prior notice of next month’s rise so they have to have enough time to do something about their stockholding levels," he says.

"Before that price comes into effect next month, they fill up from their old price."

Strategies for reducing diesel costs may gain precedence if unseasonable weather, such as cyclones or hurricanes, affects world oil supplies.

"This [the price rises] is all against the background of no major supply disruptions due to weather," he says. "If that sort of thing happened, goodness only knows crude would go to $150 [a barrel].

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