Production, Tariffs, and Renewables | Weekly News Update

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Oil Production and Chinese Tariffs Weigh Down Fuel Prices

The initial production quotas instituted by OPEC and non-OPEC nations in 2017 nearly didn’t come to fruition.  The pact came down to cooperation between Saudi Arabia and Russia, the largest producers from both groups, to finalize the deal.  Fast forward 18 months and the two oil powers seem to be cooperating once again, this time to increase oil output.  Saudi Arabia and Russia each boosted oil production in May and signaled their preference for an increase to oil production for both OPEC and non-OPEC members.  Not all members participating in the production cuts have signaled support for increased output, making the future of the 1.8 million barrels per day (mmbd) quota the focal point of OPEC’s official meeting on Friday, June 22nd.

More bearish news arrived on Friday, as China announced retaliatory tariffs on $50 billion of US in response to series of levies put in place by the Trump Administration.  The latest actions include tariffs on several commodities, including crude oil.  US oil exports to China have surged in the past year, averaging around 380,000 barrels per day in recent months.  This represents roughly 3.5% of overall domestic production, according to US Energy Information Administration (EIA) data.  The loss of crude oil exports to China may create a challenge for US oil output, which hit a record 10.9 mmbd in the EIA’s most recent weekly report.

Investment in Renewable Sources is Outpacing Fossil Fuels

Global spending on renewable energy projects totaled $297 billion in 2016, more than doubling the investments in coal, natural gas, nuclear and fuel oil power plants, according to data released by the International Energy Agency (IEA).  The IEA’s information is just the latest headline that is changing the narrative on renewable energy sources from minimally viable and majorly subsidized to an economical choice of the future.  Major efficiency gains in sources like wind and solar have helped lower the investment cost for these technologies.  Pair that with stiffening regulations and a growing move towards more advanced climate policies, and the future of renewables looks brighter than ever.

What does this mean for transportation?  Electric vehicles have gained momentum in recent years, with multiple companies unveiling plans for heavy duty electric options in the future.  The source of the electricity to charge these vehicles will become of growing importance, as will the lifecycle emissions that is associated with the energy creation.  An energy grid with more renewables will translate to ever-lowering overall emissions for electric vehicles on the road.

In Other News

6/11

WSJ: Global Investment in Wind and Solar Energy Is Outshining Fossil Fuels

Global spending on renewable energy is outpacing investment in electricity from coal, natural gas and nuclear power plants, driven by falling costs of producing wind and solar power.  More than half of the power-generating capacity added around the world in recent years has been in renewable sources such as wind and solar, according to the International Energy Agency.

6/12

Reuters: OPEC cautious on oil outlook despite end of global glut

OPEC said the oil market outlook in the second half of 2018 is highly uncertain even though the producer group’s figures show a global glut has ended, suggesting talks next week on relaxing a supply cut deal won’t be straightforward.

Argus: Venezuela’s shrinking crude output nears 1mn b/d

Venezuela has begun to proactively shut in oil production to cope with nearly replete terminal storage, further accelerating an output decline and bringing the OPEC country closer to the psychological barrier of 1mn b/d.

WSJ: Saudi Arabia Drives Rise in OPEC Oil Output

OPEC pumped more oil last month driven by higher output from Saudi Arabia, the cartel’s de facto leader, which has for more than a year led a coalition of big producers in curbing production.

Argus: Quebec responds to tariffs with metals subsidies

The Quebec government initiated a support program for steel and aluminum companies harmed by US tariffs.  Quebec will “set aside” C$100mn in a guaranteed loan fund for “smaller” steel and aluminum companies, according to state broadcaster Canadian Broadcasting Corporation (CBC).

6/13

Freight Waves: Trucking prices post large gains in May with spillover causing intermodal price rises

After leveling off in April, pricing in the trucking industry rose again in May, with local trucking prices posting their largest month-over-month gain in the post-recession era with a 1.7% increase, according to May Produce Price Index (PPI) data released this morning by the Labor Department.

6/14

CCJ: U.S. Xpress to begin trading on NYSE today at $16 a share

Shares of U.S. Xpress stock will begin trading on the New York Stock Exchange on Thursday, the company announced Wednesday, in a bid to raise hundreds of millions for the Chattanooga, Tennessee-based trucking giant (No. 16 in the CCJ Top 250). The company says it anticipates net proceeds of $250 million from its initial public offering, which the company has priced at $16 a share.

6/15

Reuters: Oil slumps 3 percent on OPEC supply, China’s tariffs

Oil prices fell more than $2 a barrel Friday after two of the world’s biggest producers indicated they might increase output at next week’s OPEC meeting, while U.S. exports were threatened by potential Chinese tariffs on crude oil and refined products.

WSJ: Why Railroads Are Making Freight Trains Longer and Longer

The freight train is now on track to stretch up to 3 miles long, with 200 cars or more. And it’s being powered, in part, by an unusual energy source: the activist investor.

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®Fuel. 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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