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Possible OPEC Deal Extension & Softening Truck Orders | Weekly News Update

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Saudi Arabia Signals OPEC Deal Extension

After reaching five-month lows this past week, crude prices rose slightly on Friday –with Brent and West Texas Intermediate (WTI) climbing 2.6 and 2.7 percent respectively—on a Saudi Arabian announcement that OPEC will likely extend output cuts past June. Part of a deal to reduce output by 1.2 million barrels per day, these cuts were originally intended to cease at the end of the month.

While the extension is likely, Saudi Energy Minister Khalid al-Falih also stated that additional discussions would be needed to align the OPEC and non-OPEC members that were part of the original deal. This comes even as tension persists within the group, with Iran stating this week that it has no plans to leave the organization despite the complicated dynamic it has with Saudi Arabia and the United Arab Emirates. With the biannual meeting of the group still scheduled for June 25, OPEC will likely continue to watch the market in the coming weeks before a decision is finalized.

Class 8 Truck Orders Down to Levels Not Seen Since 2016

Registering their lowest May numbers in a decade, Class 8 truck orders fell in May, reaching only 10,400 units and representing a 29 percent drop compared to April, and a 71 percent drop over May of 2018.  Class 5-7 orders showed a similar but muted trend, decreasing by 21 percent year-over-year.

Several factors have contributed to this ordering environment, including a lingering backlog of units for the end of this year keeping fleets waiting to see their orders, as well as projections for a slowing global economy amidst rising trade tensions. May is also the last month to order trucks for delivery in 2019, as June begins the 2020 order pattern. How this trend evolves in the coming months will likely reveal future patterns in freight growth and the overall economy.

In Other News

6/3

Reuters: Saudi Arabia Indicates Prolonged Supply Cuts

Oil prices steadied on Monday, supported by Saudi Arabia’s comments indicating OPEC and its allies would continue to tighten the crude market following deep losses last week. Saudi Arabia signaled that the group would continue managing global crude supplies to avoid a surplus.

FreightWaves: Trucking Seeks Exemption in Latest California Contractor Proposal

A new and potentially more costly proposal aimed at companies attempting to classify drivers as independent contractors is working its way through California’s legislature as trucking interests scramble for an exemption from the statute.

Bloomberg: Wall Street Warns of Mounting Recession Risk from Trade War

A global recession could start within nine months if President Donald Trump imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Separately, JPMorgan Chase & Co. said the probability of a U.S. recession in the second half of this year had risen to 40% from 25% a month ago.

WSJ: Trump Administration Lifts Summer Ethanol Ban

The Trump administration has decided to approve expanded use of ethanol fuel, a move that will help corn farmers hurt by the trade conflict with China—and that might pay political dividends for President Trump in farm-belt states such as Iowa.

Transport Topics: Trucking Industry Leaders React Cautiously to Trump Mexican Tariff Plan

Trade organizations that represent the trucking and automotive industries raised alarm that the tariffs could harm industries that support cross-border trade, and make trucks, cars and parts more expensive.

RT&S: Tariff on Mexico Could Cripple Some Railroad Companies

The railroad company has an operating line in Mexico and serves 90 percent of the auto assembly plants in the southern country. It also has four automotive distribution facilities and access to three major Mexico ports on the Pacific and Gulf of Mexico coasts.

HDT: What Does Trump’s New Trade War Mean for Trucking?

On May 30, President Trump once again sent shockwaves rippling through the financial markets, as well as the automotive industry, when he announced a new round of tariffs aimed at Mexico. While experts say the initial impact on trucking will be minimal, the effects will become direr with each passing month if the dispute is not resolved quickly.

6/4

WSJ: Trade Tensions Worry Ship Operators

Several of the big container lines that carry the household products, furniture, electronics and other consumer goods that fill retail stores have slimmed their capacity in recent weeks. Executives say they are concerned that recent weakness in shipping rates sends an ominous signal just as some major economies are starting to stumble and trade tensions are rising.

Reuters: Russia’s Oil Output Falls To 3-Year Low Due to Contamination Crisis

Russia’s average daily oil output has dropped to a three year-low after contaminated crude clogged its main export route. Average oil output was 10.87 million barrels per day (bpd) on June 1-3, down from an average of 11.11 million bpd in May.

NYT: Companies See Climate Change Hitting Their Bottom Lines in the Next 5 Years

Many of the world’s biggest companies, from Silicon Valley tech firms to large European banks, are bracing for the prospect that climate change could substantially affect their bottom lines within the next five years, according to a new analysis of corporate disclosures.

JOC: US Tariffs Threaten Fresh Congestion at Mexico Border

US shippers facing a new 5 percent tariff on Mexican goods are expected to rush goods north before a June 10 deadline. That could create even more costly congestion than exists already at the border.

Transport Topics: Lawmakers, Transportation Experts Discuss Path Ahead for Infrastructure Funding

6/5

WSJ: U.S. Crude Oil Enters Bear Market Due to Global-Growth Fears

U.S. crude futures sank into a bear market on Wednesday, falling more than 20% below their April peak, as the global-growth worries gripping financial markets were compounded by fears of a supply glut.

Argus Media: IMO 2020 Oil Price Effect May Be Minimal

The chances a pending rule to lower sulfur emissions from ships will lead to a spike in oil and diesel prices have decreased, Bank of America said in a new report. Slowing economic activity stemming from the US’ current trade policy may counterbalance any price effects from the International Maritime Organization (IMO) 2020 sulfur rules, which take effect in January.

Transport Topics: Federal Regulators Report Progress on Railroads’ PTC Implementation

The country’s rail operators continue to show progress with the implementation of automatic braking technology that Congress mandated in an effort to enhance safety, federal regulators announced recently.

6/6

WSJ: Saudis and Russia Debate Response to Oil-Price Swoon

Saudi Arabia and Russia—the world’s top crude exporters—disagree about how to respond to a free fall in oil prices, and their energy ministers are set to meet in Russia in the coming days to build a consensus ahead of a meeting of the Organization of the Petroleum Exporting Countries.

Transport Topics: Exports, Imports Plummet as US Trade Deficit Narrows

The U.S. trade deficit narrowed in April as exports and imports tumbled, highlighting the impact of President Donald Trump’s tariffs even before negotiations with China unraveled and he threatened levies on Mexican goods.

Reuters: U.S. Tightens Venezuela Oil Sanctions, Indicates More Actions To Come

The U.S. Treasury Department on Thursday tightened its pressure on Venezuela’s state-owned oil company by making clear that exports of diluents by international shippers could be subject to U.S. sanctions.

Transport Topics: Significant Upward Changes in Trucker Pay Continue

A persistent driver shortage, near full employment and a favorable freight market last year have contributed to a “significant change” in the pace of pay increases in the first quarter of 2019, according to the National Transportation Institute.

Freightwaves: Midwest Flooding Ripples Through Economy, Transportation

The flooding situation along the Missouri River has worsened recently due to heavy mid-spring rains that caused the Mississippi River and many of its tributaries from St. Louis to the Gulf Coast to swell beyond normal levels.

6/7

WSJ: Freight Operators Slowed Hiring in May on Weaker Shipping Demand

Logistics operators slowed their hiring in May amid signs of moderating freight demand across the broader American economy, while truckers and other transportation companies tied more closely to industrial output reported restrained payroll growth.

Reuters: Russia ‘Fearful’ Of America’s Rising Energy Exports

Russia has criticized U.S. efforts to supply natural gas to Europe because it is “fearful” of free market competition, Washington’s top energy diplomat said this week, in comments that reflect growing tensions with Moscow over President Donald Trump’s “energy dominance” policy.

Bloomberg: Trump Says He’ll Drop Mexico Tariff as Deal Reached on Migrants

President Donald Trump said he would drop plans for tariffs on Mexico that he’d been threatening to impose for the past week after the country promised new steps to stem an influx of illegal migration into the U.S.

Transport Topics: Top EPA Official Overseeing Trucking Regulations Reassigned

Christopher Grundler, a top U.S. Environmental Protection Agency official who has overseen a number of regulations that impact the trucking industry, has effective Aug. 4 been reassigned to head an EPA division that deals with climate change issues.

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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