Uncertain Future of OPEC+ Supply Cuts
The future of the crude oil cuts set by the Organization of Petroleum Exporting Countries and supporting nations (OPEC+) is bring uncertainty to the market. The group has been continuing to cut oil production in agreement with the deal the cartel struck late last year. The cartel and supporting countries including Russia, were set to meet in April to discuss the outcome of the cut agreement and what future cuts would look like. This meeting however, was cancelled as the group does not believe they will have accurate representation of the market at that time. This meeting was pushed back to the end of June, to not only have more time to assess the market, but also push their decision back after the US decides on if the Iranian sanction waivers will expire or if the Trump Administration will extend them.
Tension between the de facto leader of OPEC, Saudi Arabia, and Russia exists as both parties agree the crude oil output cuts are necessary, but disagree on the duration of the cuts. Russia believes the cuts have effectively worked and the outcome of US sanctions may allow the cartel to end the supply cuts. Saudi Arabia however, wants to see the cuts to extend through the end of the year as the country is pushing to get oil up over $70 per barrel. The OPEC+ meeting in June will give the market a better understanding on the future of the crude oil production cuts and will be a key driver of energy prices.
Labor Department Argues No Evidence of Driver Shortage
The federal Bureau of Labor Statistics (BLS) released a study last week stating that from a true economics perspective, there’s little evidence of a driver shortage in the long-haul trucking industry. The claim is that the main issue in the driver retention and wage growth, therefore, the market for truck drivers appears to work as well as any other blue-collar labor market. Since the truck market is cyclical, it is expected to believe that wage growth will catch up and make truck driving more attractive or in line with other blue-collar professions. The BLS study states, “Economists would not regard high turnover rates and the associated problems of recruiting and retaining drivers in this part of trucking as a long-term shortage. Nor would they call these conditions a broken market.” However in recent months, we are currently seeing wage growth increase already as many large carriers and private fleets, such as Walmart, are rising wages to keep driver retention high.
In Other News
The third-biggest refinery in the U.S. suffered a fire Saturday near Houston, hours after a Los Angeles plant was partially shut by a blaze, potentially boosting gasoline prices from Texas to California.
Sen. Tom Carper led his colleagues in introducing bipartisan legislation that would reauthorize through fiscal 2024 the Diesel Emissions Reduction Act.
OPEC and a group of 10 oil-producing nations led by Russia are deepening their crude production cuts but remain split on whether the curbs should remain in place through the end of the year, officials said Sunday.
Alberta is further relaxing oil production cuts mandated this year. The province will increase its crude production limit by 25,000 barrels per day in May and a subsequent 25,000 barrels per day in June, to bring the province’s production limit to 3.71 million barrels per day. Alberta mandated production cuts to ease congestion on export pipelines that resulted in crude being bottlenecked in storage, resulting in the Canadian heavy crude discount against other benchmark crude oils, such as West Texas Intermediate, widening to record levels.
In the last two months of 2018, the U.S. Gulf Coast exported more crude oil than it imported. Monthly net trade of crude oil in the Gulf Coast region (the difference between gross exports and gross imports) fell from a high in early 2007 of 6.6 million barrels per day (b/d) of net imports to 0.4 million b/d of net exports in December 2018.
ExxonMobil has revealed its low sulfur bunker fuel will be available from the third quarter of this year, joining the likes of BP and Sinopec in making clear it will offer compliant fuel around the world ahead of next year’s sulfur cap.
The US trucking industry hit the economic accelerator so hard last year some fear a hard-braking event ahead. So far in 2019, however, most trucking companies and their shipper customers have been able to shift gears successfully as they prepare for a spring retail freight surge that may tighten capacity in a market still shocked by last year’s chaotic first half.
Seaborne imports into the biggest U.S. gateways for Asia trade fell sharply in February, halting a monthlong shipping surge driven by strong consumer demand and a rush by companies to bring goods into the country ahead of potential new tariffs.
Refiners are trimming plans for maintenance. Refining margins have been poor for gasoline, but strong for distillates. That trend will continue ahead of the IMO regulations in 2020 that will reduce sulfur content in marine fuels, raising demand for distillates. Bloomberg reports that refiners are likely going to reduce planned maintenance periods, or front-load them in the first half of 2019, in anticipation of a strong period leading up to implementation of the IMO rules.
EVs kill 352,000 bpd of oil demand. Global EV adoption continues to rise, but the cumulative total displacement of oil from the transportation sector will only reach 352,000 bpd this year, less than 1 percent of the global oil market. Still, EV sales continue to increase.
Autonomous truck tech developer TuSimple said Tuesday it has engineered a proprietary automotive-grade camera and vision system that will go into volume production in the coming months and will be deployed on the company’s autonomous customer fleet later this year. Autonomous semi-trucks coming to I-10 soon.
States across the US are raising or considering raising their taxes to make up for funding shortfalls caused, in part, by improving fuel efficiency and electric or hybrid vehicles. The Citizens Budget Commission, a nonpartisan, nonprofit civic organization focused on New York financial policies, thinks New York should wean itself off its reliance on gas taxes and consider charging motorists by the mile to pay for roads and bridges. Also see, Ohio Joins States Hitting Drivers Where It Hurts: Raising Taxes on Gas.
A lengthy study recently published by the federal Bureau of Labor Statistics concludes that, from a true economics perspective, there’s little evidence supporting the widely publicized notion that there’s a driver shortage in the trucking industry. Any perceived shortage is isolated to long-haul truckload fleets, argues the study from BLS, the U.S. Department of Labor’s research wing. Also see, Labor Dept.: Don’t believe media on trucker shortage.
Three Republicans in the U.S. House of Representatives are ready to re-legislate on the technology for self-driving vehicles. And, to do so, they are asking the chamber’s new Democratic leadership to proceed with a bill.
Shippers are tendering less freight to truckload carriers than a year ago in early 2019, prompting industry analysts to wonder whether the tables have flipped towards lower rates and a buyer’s market this year.
Strikes by truck drivers can cost billions and leave manufacturers scrambling to meet customer demands. The ramifications of even a short-term stoppage would ripple throughout not only the economy, but everyday life.
With the rate of cargo robberies rising by double-digits, albeit at a slower clip than last year, Mexican cargo owners are teaming up with truckers and third-party logistics providers to better securing their supply chains while waiting to see how a new presidential administration will address the issue.
Businesses in Canada would be able to write off the full cost of zero-emissions trucks under provisions in the federal government’s new proposed budget. Electric, plug-in hybrid (with batteries above 15 kwh) and hydrogen fuel cell freight trucks rated above 11,788 kilograms would be eligible for full deductions under the 2019 federal budget, presented in the House of Commons on March 19. Current regulations allow 40 percent of the cost of zero-emissions trucks to be deducted.
At least two tankers have ferried Iranian fuel oil to Asia in recent months despite U.S. sanctions against such shipments, according to a Reuters analysis of ship-tracking data and port information, as well as interviews with brokers and traders.
Chamber President Thomas Donohue told Congress this month that the chamber advocates raising the federal tax on a gallon of gas, which stands at 18.4 cents, by 25 cents over the next five years to produce funds desperately needed to fix the nation’s transportation network, and perhaps kick-start a broader effort to upgrade America’s infrastructure.
With the U.S. and China preparing for a fresh round of face-to-face negotiations, President Trump said the U.S. expected to keep tariffs on Chinese goods in place for a “substantial period of time,” even after a deal. Also see, Trump Says Tariffs on China Could Remain in Place.
Policymakers make their way back to Capitol Hill after a weeklong spring recess to continue to stitch together the provisions for a comprehensive infrastructure bill they want to pass by August. Their ongoing debate on infrastructure policy is likely to coincide with partisan fights over transportation funding priorities, as well as floor votes on key DOT nominees.
Carriers and oil majors are trying to ease concerns over the availability of low-sulfur fuel later this year when the shipping industry begins to comply with the International Maritime Organization (IMO) mandate. That’s leaving price as the key uncertainty that will determine the level of fuel surcharges to be paid by shippers.
Budget needs are forcing Saudi Arabia to push for oil prices of at least $70 per barrel this year, industry sources say, even though U.S. shale oil producers could benefit, and Riyadh’s share of global crude markets might be further eroded.
The U.S. posted its biggest monthly budget deficit on record last month, amid falling corporate and individual tax revenue and increasing federal spending. The budget gap widened to $234 billion in February, compared with a fiscal gap of $215.2 billion a year earlier.
Hapag-Lloyd says its customer-focused, value-adding strategy this year will result in a substantial improvement in earnings in 2019, supported by growing container volume and rising freight rates. That’s a spot of good news for the broader container shipping industry, which struggled for profitability in 2018, as high bunker fuel prices and weak rates eroded volume and revenue gains, and it has serious cost questions to answer when the bill comes due for the low-sulfur fuel mandate later this year.
A.P. Moller-Maersk A/S is about to conduct the shipping industry’s biggest test yet of biofuel as it seeks to cut emissions and meet its target of becoming carbon-neutral by 2050. Also see, Maersk Joins Alliance Supporting Low-Carbon Transport.