US Economic Data and Tension in the Strait of Hormuz Lift Oil Prices
Crude prices rose this past week, in conjunction with better-than-expected US economic data and threats to oil transport through the Strait of Hormuz. While economists projected slowed second-quarter economic growth in the US, consumer spending and GDP both beat expectations, providing greater optimism for the global economy and subsequently a more bullish outlook for oil demand. Such optimism is further bolstered by the upcoming meeting between US and Chinese negotiators this week in Shanghai, where both parties will attempt to craft an acceptable trade accord.
The perceived threat to oil transport in the Strait of Hormuz also motivated this upward price movement, causing Brent and WTI to rise by 1.7 and 1.2 percent, respectively. Following Iran’s seizure of a British vessel in the strait in mid-July, the UK has begun deploying warships to escort the nation’s commercial vessels operating in the Persian Gulf, sending one of its Type 45 warships to the region on Sunday. As Iran faces the impact of US sanctions, and other nations add further security measures for their vessels in the region, crude prices will likely remain volatile. Whether this geopolitically-motivated price movement will be overshadowed by larger economic headwinds from the US and China, however, remains to be seen.
Greater Availability and Softening Demand Weigh on Trucking Companies
Following the tight capacity and heightened demand that characterized the 2018 freight marketplace, many trucking companies are now dealing with reduced earnings, as availability of their vehicles increases and demand for them decreases ahead of the peak shipping season. Following a profitable year in 2018, carriers initially responded by expanding fleets and ordering equipment, and now face decreasing cargo volumes as 2019 continues.
Lukewarm industrial growth and continued trade tensions, as well as a continued inventory overhang following many companies’ decision to pull freight forward at the end of 2018, have contributed to this dynamic as well. Reduced demand has been especially prevalent on the spot market, where both spot prices and overall activity have dropped. With uncertainty surrounding the US and China as they attempt once more to create a trade deal, this dynamic may persist with shippers having a greater say in the price they pay to move goods, and carriers contending with slowed demand.
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