Economic Data & Geopolitics Lift Oil Prices | Weekly News Update

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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.

In Other News

7/22

WSJ: U.S. Shale Producers Benefit as Oil Disruptions Plague Middle East

Oil supply disruptions in hot spots around the world—from Iran’s seizure of a U.K.-flagged tanker in the Persian Gulf to the shutdown of Libya’s largest oil field at the weekend—are putting pressure on the cost of buying and shipping crude. But the turmoil is benefiting U.S. shale producers, whose oil fields and tankers are partly filling the void.

WSJ: U.S. Imposes New Sanctions on Chinese Company for Transporting Iranian Crude Oil

The U.S. is imposing new sanctions against a Chinese company for transporting Iranian crude, a move that widens the U.S. campaign of pressure on the Islamic Republic amid weeks of escalating tensions.

Reuters: Pemex Business Plan Raises Doubts About the Company’s Viability

Mexican state oil company Pemex’s newly announced business plan is a risky about-face that raises doubts about the company’s long-term viability, analysts with credit rating agency S&P Global Ratings wrote in a note on Monday.

Platts: UK Seeks ‘European-Led’ Maritime Protection Mission in Strait of Hormuz

The UK will attempt to build a European-led force protecting free navigation in the Strait of Hormuz after last week’s capture of the tanker Stena Impero by Iranian forces, Foreign Minister Jeremy Hunt said Monday.

JOC: Little Low-Sulfur Front-Loading Expected on Trans-Pacific

Shipping and rail experts say freight rate increases of $100-300 per TEU that could accompany the transition to low-sulfur bunker fuel after Jan. 1, 2020, will not result in significant front-loading of spring merchandise in the fourth quarter on the trans-Pacific.

Transport Topics: Federal Watchdog Recommends Congress Improve Freight Infrastructure Grants

In a report raising concerns about the U.S. Department of Transportation’s management of infrastructure grants popular among state officials, the Government Accountability Office recommended Congress reform the program.

7/23

Bloomberg: Europe’s Most Important River Risks a Repeat of Historic Shutdown

The bustling boat traffic on Europe’s Rhine river ground to a halt for the first time in living memory last year, as shrinking alpine glaciers and severe drought made the key transport artery impassible. Those historic conditions could be repeated in a few weeks.

CCJ: Electric Trucks Face Hurdles from the ‘Cost of Technology,’ Infrastructure

The electrification of trucking focuses mostly on potential cost savings at the fuel island and the elimination of downtime caused by legacy driveline failures. But the potential to slash truck emissions is certainly an added benefit.

Platts: Hurricane Barry’s Impact Still Being Felt in USGC Crude Market

The differential for Mars crude on the US Gulf Coast reached its strongest value Monday since March 14, as lost production due to Hurricane Barry, which caused many US Gulf of Mexico producers to shut-in output, created a tight prompt market for regional grades.

JOC: US-Mexico Shippers Turn to Intermodal Amid Truck Delays

Kansas City Southern Railway (KCS) is attracting more US-Mexico intermodal cargo as high volumes of US-bound truck traffic lead to delays and a truck-and-trailer equipment imbalance on the Southwest US border.

Transport Topics: Lyft Making Driverless Data Public in Bid to Speed Development

Lyft is making research data on self-driving technology available to the public in a bid to accelerate the development of robotic cars, which is seen as critical to the ride-hailing giant’s future viability.

7/24

CCJ: Electric Fueling on The Go Without Crashing the Electric Grid

Smart urban planning could be the only thing keeping a tidal wave of EVs from crashing electric grids across the country. With energy demands growing rapidly, the ways people consume energy is going to have to change when more EVs plugin.

Fleet Owner: Truck Driver Shortage on Course to Double In A Decade

The U.S. trucker shortage is expected to more than double over the next decade as the industry struggles to replace aging drivers and recruit more women.

WSJ: U.S. Oil Inventories Fall Much More Than Expected

U.S. inventories of crude oil fell sharply last week, while gasoline stockpiles also declined, according to data released Wednesday by the Energy Information Administration.

Reuters: Global Oil Market in Glut, But Not A Big Enough One For OPEC

OPEC has shifted the goalposts for assessing an overhang in oil inventories, giving the group more room to prolong production cuts, while analysts warn the move will offer a distorted view of market conditions.

7/25

Reuters: Saudi Arabia Aims to Expand Pipeline to Reduce Oil Exports Via Gulf

Saudi Arabia aims to raise the capacity of its east-west pipeline by 40% in two years so more of its oil exports can avoid passing through the Strait of Hormuz, the energy minister said on Thursday.

FreightWaves: U.S. Rail Volumes Continue Dip

U.S. rail volumes fell yet again for the week ending July 20, according to data from the Association of American Railroads. Total U.S. rail traffic fell on both a weekly and year-to-date basis compared to the same periods in 2018.

Platts: Brent/Dubai Spreads Narrow Despite Looming IMO 2020 Deadline

Benchmark Dubai crude futures’ discount to Brent continued to narrow in early morning trading in Asia on Thursday, even as the International Maritime Organization’s low sulfur cap rules on marine fuel from January 2020 draws closer and toward the tail end of September trading cycle.

Transport Topics: FMCSA Plans Survey on Harassment

The Federal Motor Carrier Safety Administration is drawing up plans for a survey and study to better understand the “prevalence, seriousness, and nature of the problem of harassment and assaults against minority and female truckers.”

7/26

Bloomberg: A Dead End for Fossil Fuel in Europe’s City Centers

Ever since Volkswagen AG was found out in 2015 to be rigging engines, harmful car emissions have come under intense scrutiny from consumers and regulators. Municipalities in Europe have been pushing to get diesel cars, in particular, out of inner cities.

Reuters: Flags of Inconvenience: Noose Tightens Around Iranian Shipping

Nations that register vessels under so-called “flags of convenience” allowing them to sail legally have de-listed dozens of tankers owned by Iran in recent months, tightening the economic noose around it.

Fleet Owner: U.S. Infrastructure Construction Costs Pose Threat to Economy

High construction costs pose a major threat to the U.S. economy. Not only are highways and transit systems irreplaceable for most Americans, but they also enable the free movement of people and goods within and between cities — the glue that holds together networks of domestic production.

JOC: Upward Pressure on Low-Sulfur Fuels Raises Shipper Risk

With virtually no possibility that the global low-sulfur mandate will fail to take effect Jan. 1, the container shipping industry is seeing signs that the cost of meeting the International Maritime Organization (IMO) rule will come in on the higher side of various estimates.

This weekly publication is designed to highlight relevant industry news to provide professionals in the transportation, supply chain, and energy sectors with up-to-date information in a rapidly changing marketplace. This update is purely a compilation of industry news and as such, does not necessarily reflect the opinion of Breakthrough. We do not warrant or guarantee accuracy or completeness of information. For additional information, please contact us at info@breakthroughfuel.com.

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