Positive Demand Hopes Extend the Oil Price Rebound
Oil prices have extended their recent recovery, as hopes for a bounce in fuel consumption with economies hard hit by COVID-19 slowly reopen for business. The recent gains have paused a weekslong crash that was mainly driven by worries about North America’s main hub for oil storage running out of space.
Oil prices are now receiving a boost on two fronts. Demand for products such as gasoline and diesel are seeing upward pressure as parts of the U.S. and Europe relax restrictions on movement and the Chinese economy recovers. At the same time, the production of crude oil has dropped.
There are other signs that the oil market may be turning a corner. The gap between spot prices for U.S. crude, compared with the price of futures contracts, has narrowed after a dramatic widening in April. That has reduced financial incentives for traders to put oil into storage.
Trucking demand craters, rates follow
Trucking companies saw less demand in April as factories shut down and stay-at-home orders led to a drop in consumer demand, outside of grocery and other essential items. As fewer shippers look to move goods, trucking companies will struggle. But the shippers left on the market could benefit from lower spot rates as a result.
A supply and demand balance in the freight market is expected to swing in favor of shippers in the short term, but then swing back to carriers heading into 2021, according to Tim Denoyer an ACT Research Senior Analyst.
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The coronavirus pandemic is affecting multiple components of rail volume. Reduced imports at west coast ports mean fewer intermodal containers moving via rail to the middle of the country, and shuttered auto plants mean major customers aren’t moving freight.
Orders for heavy-duty trucks in April plunged to the lowest level on record as trucking companies put expansion plans on ice due to upheaval from the coronavirus pandemic.
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Total employment in the for-hire trucking industry tumbled by 88,000 jobs in April, according to the Department of Labor’s monthly Employment Situation Summary. That significant dip, nearly 6% of the entire trucking workforce, was part of the broader economy’s shedding of 20.5 million jobs in the month as the economic freeze under the coronavirus outbreak and corresponding shelter-in-place orders from states spurred a wave of temporary and permanent job losses.
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