Oversupply and Weakening Demand for Crude Oil
West Texas Intermediate (WTI) crude prices dropped for twelve consecutive days, moving from a closing price of $67.59 down to $55.69 per barrel (bbl), a difference of $11.90/bbl and ultimately moving WTI into a bear market. The large drop is attributed to concerns of an oversupplied market and projected weakening demand in 2019. Just weeks ago, the Organization of Petroleum Exporting Countries (OPEC) decided to move into “produce as much as you can” mode, which led to rising production from Saudi Arabia, Russia, Iraq, Libya, and the United Arab Emirates (UAE). This week, OPEC signaled they would cut production by 1 million barrels per day (mmbd) in 2019 based on October’s production amounts amid surging global supply and weakening demand. The group will make a final decision on production cuts when they meet in December.
As crude oil tumbled, diesel followed its downward trend. Diesel wholesale prices have dropped roughly 24 cents in the last 14 business days to its lowest level since July 2018. During this time, the Department of Energy (DOE) index, remained relatively flat. The spread between the DOE index and wholesale prices or the Breakthrough Advantage averaged over 51 cents this past week. Last time spreads averaged over 51 cents in a single week was February 2018. To learn more about the recent drop in crude and diesel markets, please visit our Advisor Pulse, Diesel Impacts of a Bearish Oil Market.
Rail researchers explore hydrogen-powered locomotives
As industries look to alternatives to lower the amount of greenhouse gas (GHG) emissions, Michigan State’s Center for Railway Research and Education is exploring the use of hydrogen-powered locomotives. The only by-products of hydrogen fuel cells are water and heat, resulting in ultimately emitting zero greenhouse gasses. This technology is more popular globally as Germany launched their first commercial hydrogen fuel cell service earlier this year.
In Other News
Net oil importer Indonesia could reactivate its OPEC membership if it can successfully raise its crude oil production and reduce consumption by boosting the number of biofuels used in its transportation sector.
The third quarter results of container lines are revealing how much carriers need to step up their recouping of higher bunker fuel costs – lest they get slammed by even higher prices caused by the meeting of the low sulfur rule.
A new labor agreement between UPS Freight, the less-than-truckload unit of UPS, and the Teamsters Union was reached over the weekend, with UPS Freight Teamsters members approving a new contract over the weekend.
The top Republican authorizer on highways and transit policy in the U.S. House pledged to work alongside Democrats in crafting a long-term measure that would be designed to maintain and modernize the country’s infrastructure system.
The Organization of the Petroleum Exporting Countries met with Russia and other producers in the United Arab Emirates this past weekend to debate a potential output cut. While the group didn’t make a final decision on output levels Sunday, they acknowledged a need to again shift strategy just months after a decision to ramp up production.
Electric vehicles and more efficient fuel technology will cut transportation demand for oil by 2040 more than previously expected, but the world may still face a supply crunch without enough investment in new production.
All good things must come to an end, and the historically fat times trucking has enjoyed recently may be on borrowed time.
Oil’s slide accelerated on Tuesday, with U.S. futures suffering their steepest one-day loss in more than three years due to ongoing worries about weakening global demand and oversupply.
It’s no secret that shipping lines struggle to achieve accuracy in the invoices they issue to beneficial cargo owners (BCOs) and non-vessel-operating common carriers (NVOs), but the root cause of that problem is often laid at the door of technology, or a lack of investment in technology.
TransCanada Corp is reviewing a decision by a Montana judge blocking construction of the Keystone XL pipeline, but the impact on project timing remains unclear.
The Trump administration is pushing for new limits on pollution from commercial trucks, a rare move toward stricter air-quality rules for an administration that has prioritized deregulation.
The head of Alphabet Inc.’s Waymo unit said it plans to launch its first commercial self-driving car service in the next two months and expects businesses to be among its biggest customers.
The Trump administration will hold off for now on imposing new tariffs on automobile imports as top officials weigh revisions to a report on the national security implications, according to two people familiar with the matter.
Shippers can expect greater capacity management from container shipping lines going into 2019 as the carriers try to better match supply with demand and lift rates in an unforgiving fuel-cost environment. Those cuts could even be more severe in 2020, based on global volume health and whether carriers can recoup higher fuel costs from the global low-sulfur rule or are forced to slash capacity in response.
A group representing biofuel companies asked a federal judge on Tuesday to force the U.S. Environmental Protection Agency to stop exempting small refineries from renewable fuel laws until a lawsuit challenging the agency’s actions is resolved.
Global oil supply will outpace demand throughout 2019, as a relentless rise in output swamps growth in consumption that is at risk from a slowing economy, the International Energy Agency reports. Also see, WSJ: Global Oil Supply to Outstrip Demand on Record U.S., Russia, Saudi Production.
So far, there is little evidence that tariffs will ruin Christmas. The relatively tame inflation numbers are a bit of a surprise, considering that the U.S. in late September slapped a 10% tariff on about $200 billion in Chinese goods, around $70 billion of which are consumer goods.
The U.S. oil market is scrambling to adjust to a deep selloff over the last several weeks, with forward prices signaling a supply glut which could upend plans for producers and traders through 2019.
Class 8 sales in October reached the highest point in more than three years as a smoother supply chain and the bullish economy lifted the total to 25,007, WardsAuto.com reported.
Elon Musk is apparently charting his way out of what he’s referred to as “delivery logistics hell” by making acquisitions and lining up contracts with trucking haulers. Also see, Tesla Has Bought Trucking Companies to Boost Deliveries, Elon Musk Says
Five of the largest container ship lines plan to join forces to create new digital standards to be used across the industry. The world’s largest container lines plan to look at emerging technologies as new options come to the market.
US shippers moving cargo before the winter holidays may get some surprise capacity in their stockings, but the capacity openings aren’t a sign of economic weakness, nor are they an excuse for shippers to let down their guard. Also see, JOC: E-Commerce Demand Drives Unlikely Distribution Spots.
Imports into U.S. seaports are surging over usual seasonal patterns in an apparent push by retailers and manufacturers to pull orders forward ahead of a new round of tariffs set to hit U.S.-China trade in January.
President Donald Trump said he is optimistic about resolving the U.S. trade dispute with China after receiving a response from Beijing to his demands, ahead of a widely anticipated meeting with Chinese President Xi Jinping in Argentina later this month.
Container shipping has been gradually deregulated over the years to the point where pricing today reacts seamlessly to changes in supply and demand. The collective activities of carriers on the operating side – engaging in vessel-sharing agreements (VSAs) – could continue by government regulation.
Compatibility issues with bunker fuels can be expected to continue after the majority of the shipping industry shifts to burning lower-sulfur marine fuels in 2020, according to fuel testing company Bureau Veritas.
For nearly a century, railroads have relied on diesel-powered locomotives to haul goods and people long distances. But as concerns mount about greenhouse gas emissions and the rising cost of diesel, rail researchers are exploring alternatives.