Fuel & Freight Update | COVID-19 Improvements Help Markets Find Stability

ENERGY MARKET

Wholesale diesel prices have maintained upward momentum since the widespread relaxation of COVID-19 lockdown measures revitalized fuel consumption. Many suppliers also remain motivated to restrain production in the push to reduce the supply glut brought upon by the pandemic’s demand blow. The tightening of the supply-demand gap has enabled oil prices to hold above $30 per barrel. Similarly, national wholesale diesel prices hover near their highest level since early April at about $1.66 per gallon. We believe wholesale prices reached their bottom at the end of April. The gap between the DOE retail index and the wholesale market has narrowed following the gradual wholesale price increase, albeit remains elevated based on the DOE’s muted response.

Consumers returning to the roads and avoiding public transportation to limit virus exposure have triggered the recent demand recovery, even though demand is still well below prior-year levels. Meanwhile, more aggressive supply-side actions are being implemented by crude oil and refined product producers. The U.S. is a microcosm of similar adjustments internationally, with recent domestic crude oil production figures showing over a 10 percent decrease since record-highs in February. Refining operations have followed suit, with utilization rates hovering near their lowest point since the Great Recession in 2008. Continued production scale downs and expectations of demand slowly coming back will see wholesale diesel prices increase through the second half of 2020 and into 2021. The increase will be drawn out and diesel prices are still expected to hold below pre-COVID-19 levels for the foreseeable future. A full-blown energy market recovery still hinges on COVID-19’s lifespan.

FREIGHT MARKET

Freight demand in the Breakthrough Network has sustained year-over-year growth so far in May and is expected to hold this path in the short term.  As the U.S. enters a period of uncertainty for COVID-19’s recovery, consumers are holding their spending behaviors steady.  Moreover, even as all 50 states make plans to reopen in some capacity in the near future, freight demand shows minimal signs of an uptick.

In the most recent preliminary release of the University of Michigan’s Consumer Sentiment Index, individuals were surveyed to gauge their biggest concerns as they related to the pandemic.

An overwhelming majority of consumers said health is still the top concern, while required isolation and the financial strength of their families were less of a concern.  This leads us to believe that current consumer behavior will stay steady even as economies reopen, leaving freight demand with a similar outlook.

View our past market updates in response to COVID-19 and recent OPEC+ dynamics below:

• 5.11.2020  | Market Responds to a Tentative COVID-19 Recovery
• 5.4.2020   | Shifting Dynamics Leave Markets Volatile