Oil Watchdog

A surging tide in oil prices helped push Arizona’s average cost for
a gallon of diesel to a record $3.22 Tuesday and continues to buoy
gasoline prices that should sink this time of year.

Businesses that make their living on the road are passing along
the mounting costs as oil products command more of their budgets.

Adjusted for inflation, oil prices are near the record set in
1980 of $38 per barrel, which would be $96.15 now as calculated by the
U.S. Department of Labor.

Oil closed at $90.38 Tuesday.

Those prices eventually hit everything that moves by truck with
Arizona diesel running 23 percent, or 60 cents per gallon, ahead of
prices a year ago.

That includes the 10 to 15 diesel trucks that Phoenix-based
Dircks Moving, Logistics and Real Estate operates daily. The company
adjusts a fuel surcharge to compensate for the fluctuating price for
interstate moves, but competition has kept Dircks from updating the
surcharge for local moves.

"The housing market is down, so the moving business is down,"
President Chip Dircks said. "We haven’t adjusted rates because of the
soft market."

Diesel prices normally rise in winter because diesel is similar
to heating oil, which comes into higher demand. So the oil run-up is a
double hit.

"It’s definitely worse," Dircks said. "Diesel used to be cheaper than gas."

Phoenix-based Swift Transportation Co. Inc., with about 17,900
trucks hauling goods for major retailers like Wal-Mart and Target, also
can pass on some rising fuel costs to customers through surcharges but
has to absorb certain fuel expenses, Vice President Dave Berry said.

"Our biggest concern about the cost of fuel is the impact on our customers and their customers," he said.

The company tries to save fuel by reducing idling time and by
buying fuel-efficient equipment to cut the costs of travel between
pickups and of running motors while drivers sleep to keep the air
running. The company can’t recoup those costs through surcharges, he
said.

No break at pump

The rise also is denying Arizona drivers a gas-price reduction
when demand and prices usually give them a break following the heavy
summer driving season. A gallon of regular averaged $2.73 in the
Phoenix-Mesa area Tuesday, according to AAA Arizona and the Oil Price
Information Service.

"Last year, the average price of gasoline in Arizona fell by 50
cents between Labor Day and the third week in October. This year, we’ve
only seen (about) a 2-cent drop within that same period," said Linda
Gorman, public affairs manager for AAA Arizona. "As long as crude costs
remain high, it is unlikely that we will see pump prices fall as they
typically do this time of year."

Gas prices remain below the records set in September 2005, but
diesel’s average of $3.21-$3.25 set records Tuesday from the West
Valley to the East Valley, according to the service, with the
Phoenix-Mesa average settling at $3.22. The previous state record of
$3.17 set Oct. 20, 2005, first was broken on Oct. 24 this year and has
risen since.

Myriad causes

Everything from fighting in northern Iraq to the faltering U.S.
currency has been blamed for the high prices. Industry critics also
complain that energy speculators are more to blame than the oil supply.

"Speculators in largely unregulated futures markets are using
any excuse, from bad weather in Mexico to a dip in U.S. oil supplies,
to drive crude oil toward $100," said Judy Dugan, research director of
Foundation for Taxpayer and Consumer Rights and its OilWatchdog.org
project.

She said the number of $100 call options for December oil,
essentially wagers that oil will cost more than $100 a barrel by then,
allowing option-holders to buy at that price and sell for a profit,
show that "gamblers" are driving the market.

The foundation wants more regulation of energy trading and supply.

"Electricity is regulated in most places," she said. "It has
kept profits of utilities at a level that is modest but certain enough
for investors. While it doesn’t suppress prices overall, what it does
is tie the price to the raw material with only a modest profit, which
avoids some of the speculation by power producers."

The Federal Reserve meeting today could fuel the frenzy if
interest rates are lowered again, said analyst Phil Flynn with Alaron
Futures and Options. September’s half-point rate cut sparked interest
in oil, he said.

"The Fed gave a green light to buy all commodities and put them
on sale for the rest of the world as the Fed attempted to save the
economy from a housing bubble and may have created a little commodity
bubble in its place," Flynn said in a daily energy briefing.

"One bubble to another is a good strategy because the Fed knows
a little about how to fight a little commodity price inflation but also
because it shows that the Fed feels that the strong parts of the
economy not affected by housing can withstand these higher prices."

Refiners play catch-up

Refiners said they are tired of taking the blame for rising costs and the industry is doing what it can to meet demand.

"You’ve got a number of policy makers saying refineries need to
expand capacity and, on the other hand, saying that in 10 years we need
to reduce gas consumption," said Bill Holbrook, communications director
for the National Refiners and Petrochemical Association in Washington,
D.C.

The industry also takes a lot of heat for not building a new
refinery in the U.S. since 1976, but he said that it is difficult to
site new facilities and that the existing refineries constantly add
capacity.

"And they love to throw out the number of profits," Holbrook
said. "Without profits, we’re not making upgrades, whether
environmental upgrades or capacity, and we’re doing a lot of them."

Profits also help with maintenance, which was the problem in
the spring when fuel prices last spiked. Refiners were catching up on
maintenance after repairing infrastructure damaged by Hurricanes
Katrina and Rita, he said.

"In the spring, capacity was maybe 88 to 89 percent, and
typically it’s 93 to 95 (percent)," he said. "We get criticized if we
are only operating at 90 percent capacity."

RISING COSTS: The cost of oil per barrel is nearing its highest-rate ever when adjusted for inflation.

BUSINESS COSTS: Companies struggle to recover fuel costs due to stiff competition in a tight market

PERSONAL COSTS: Arizona drivers are not seeing prices decrease the way they did last year at this time.