FedEx on Friday sharply reduced its outlook for the quarter ending May 31.

Citing rapidly rising fuel costs and a restrained market for its domestic express and LTL freight business, the nation's second largest package carrier said earnings in its fourth fiscal quarter would be in the range of $1.45 to $1.50 per diluted share, compared to the previous forecast of $1.60 to $1.80.

In March when FedEx last forecast earnings for the quarter, crude oil was selling for approximately $100 per barrel. Last week, the price on the New York Mercantile Exchange hit a record $125.96 per barrel. Notwithstanding fuel surcharges, FedEx estimated that its costs for fuel increased 7 percent or $100 million in the quarter.

"While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices," said Alan B. Graf, Jr., executive vice president and chief financial officer.

Prospects for the rest of the year and into next year are clouded by the final statement in Friday's announcement. "This revised outlook assumes no additional increases to the current fuel price environment and no further weakening of the economy," the company said.

The two key factors show no signs of immediate improvement.