Shippers experienced record-breaking fuel prices in the 2022 energy market. Diesel fuel prices were the most volatile they’ve ever been, with wholesale prices moving more than $0.10 per gallon every three to four trading days. In the past decade, the average time between such price changes was more than 200 days.
Though price volatility is expected to persist in 2023, the energy market has already started to soften. Prices will remain far above pre-pandemic levels as a mild recession and heightened inflation contribute to stalled economic growth. Further, global fuel trends are poised to shape the energy market over the course of the year — triggering additional uncertainty and potential disruptions.
For shippers, particularly transportation professionals, these market disruptions can make it difficult to forecast fuel costs in transportation budgets. But industry solutions exist to help shippers more nimbly respond to market developments. Specifically, shippers can leverage market-based fuel reimbursements to ensure their energy costs reflect lane-level fuel price fluctuations.
A resilient transportation network strategy ensures shippers are prepared for marketplace uncertainties. With this in mind, here are the top three global fuel trends set to influence energy costs in 2023.
1. The EU continues to reduce its reliance on Russian crude oil
In the aftermath of Russia’s invasion of Ukraine, countries and political alliances across the globe took steps to reduce their reliance on Russian oil imports. The European Union (EU) focused on cutting Russian gas imports by two-thirds within the year, resulting in a number of formal economic sanctions and increasingly stringent commercial embargoes.
In December 2022, the EU enacted a ban on all seaborne Russian oil imports — their most significant response to date. The EU and other allied countries also imposed a $60 price cap on crude oil originating from Russia. These moves aimed to reduce the EU’s dependency on Russian crude oil and slash the country’s oil export revenue as it continues to wage war on Ukraine.
This year’s energy marketplace will experience the full impact of this historic transition away from Russian crude oil consumption. By February 5, the EU will ban all Russian oil product imports, which has already created a global logistical shuffle. This divestment will undoubtedly impact diesel fuel prices throughout the year — potentially triggering upward fuel price pressure for shippers.
2. China’s decision to move on from COVID containment brings upside price risk
China’s zero-tolerance COVID policy triggered a significant economic slowdown and disrupted domestic production over the last several years. These challenges were particularly potent in 2022, as the country experienced declining retail sales, worsening unemployment and slumping real estate investment. Although China reversed its zero-COVID policy at the end of 2022, it’s uncertain how quickly the country will rebound to pre-pandemic economic activity and take on 2023’s challenging marketplace.
China’s relaxed COVID policies could significantly increase demand for crude oil and refined products throughout 2023 as clarity improves for businesses and consumers. This domestic reopening poses significant uncertainties for transportation supply chain professionals, with transportation energy prices set to greatly impact shippers’ budgets.
3. OPEC+ will be quick to cut production — but slow to add it
In October 2022, OPEC+, the Organization of the Petroleum Exporting Countries and its allies (notably including Russia), agreed to reduce their oil output to the international market by 2 million barrels per day. Since that time, OPEC+ crude oil production has largely remained flat with expectations for minimal supply growth throughout the year. But as impacts of a possible global recession and elevated inflation continue to take shape, the organization’s export policies will remain uncertain in 2023.
Should global economic growth slow considerably, OPEC+ may choose to cut more crude oil production to prevent its prices from falling further. This potential — and plausible — action would maintain higher transportation fuel prices than otherwise expected during an economic downturn. If OPEC+ takes action to further support crude oil prices, shippers should expect a higher price floor for transportation energy than they paid prior to the pandemic.
Navigate marketplace volatilities with a resilient transportation strategy
Diesel fuel price fluctuations can feel overwhelming — especially when they’re tied to evolving global fuel trends. But you can ensure an agile supply chain capable of adapting to shifting energy prices. With capacity increasing, it’s a critical time to optimize your transportation network strategy.
Transition to a market-based fuel reimbursement program. If you’re using fuel surcharge programs to manage fuel costs, you’re routinely overpaying for fuel. Fuel surcharges are often based on outdated base rates and distorted averages from the Department of Energy Diesel Fuel Price Index — not on real-time market movements. Instead, implement a market-based fuel reimbursement strategy tied to granular energy cost fluctuations. This program ensures you pay fair and accurate rates for fuel, and it accounts for rapid developments in global fuel trends.
Integrate alternative energy solutions. We’ll see increased adoption of alternative energy fuel sources throughout 2023 — including more alternative trucking fleets — beyond pilot programs and early-adopter markets. While energy prices remain higher than pre-pandemic levels, it’s a good time to consider alternative energy options. CleanMile, the first end-to-end transportation emissions management solution, can help you understand the economic and emissions reduction advantages of alternative energy sources and vehicles. It can also identify applicable tax credits and lane-specific recommendations.
Optimize your carrier network. Over the last several years, restricted freight capacity and regular supply chain congestion meant that shippers moved goods by any means available. As a result, it was often difficult to secure reliable carrier service — and at a competitive rate. But as capacity continues to increase in 2023, look for ways to optimize lanes and foster carrier partnerships in your transportation network. In particular, prioritize linehaul rate negotiations that are closer to the rate benchmark, as well as lane performance management and carrier partnerships that align with your network priorities.
Global market events will undoubtedly cause price volatility throughout 2023. But this doesn’t mean fuel has to be an unmanageable line item in your budget. Ensure your transportation strategy remains agile in the face of rapid energy developments by leveraging a market-based fuel reimbursement program. To learn more, schedule a demo of Fuel Recovery.