Q3 State of Transportation - Crude Oil Record Lows

HOUSTON - Aug. 24, 2015 - PRLog -- In the middle of Q3 the transportation industry is in a place that many experts did not foresee.  Crude oil prices have not shifted in favor of the predications, new drilling has nearly come to a halt, and fuel prices are still substantially lower than last year.  All this to say the current conditions are not unfavorable for transportation, which cannot be stated for similar crude oil dependent markets.

Crude Oil Prices

In the early part of 2015 many economists, banks, gas companies, and others predicted a slow recovery for the price of crude oil. As of today, August 19th 2015, the price per barrel is $42.00 for the WTI and $48.00 for Brent, which is the lowest point in six years.  One variable that the majority of parties agree on is the cause, which can be amounted to persistently high crude oil production in the U.S. and other countries with already substantial reserves.

Despite new drilling projects coming to a standstill the current rigs in operation are putting the inventory at record highs.  If crude inventory stays at record levels while refineries are in their fall maintenance periods there are grounds for another price drop.  Global supply continues to beat out demand.

Trucking

The drop in fuel prices have been beneficial for consumers, shippers, and truckers.  The current national average for diesel is $2.615 per gallon.  It is anticipated that diesel will go back up to $3.12/gal in 2016.

Due to the lower diesel rates truckload shipping rates are continuing to rise while the intermodal shipping is trending cheaper.  There is typically a direct correlation between these two mediums and if truckload shipping continues to rise it is anticipated that intermodal will soon follow.

FTR’s Trucking Conditions Index (TCI) rose to the highest level of 2015 in June at 7.66 increasing 56% from May.  The fall peak season is not going to be as robust relative to the big jump in 2014 but the decline fuel prices will help.

Despite desirable trucking conditions there is still a shortage of drivers. “We’re short 35,000 to 40,000 [drivers] as of 2014. I haven’t quantified it yet, but I would not be surprised if that’s going to average 50,000 or more this year,” says Bob Costello, chief economist at American Trucking Associations.

Equipment

Prices for the most part have remained inline with Q2 for the trailer market with minor month over month increases.  There was a slight surge in June which defies seasonal patterns but prices have been stable since.   With the lower gas prices, demand for fuel tankers has been slightly higher, which in turn has seen modest price increases.

Truck sales (http://www.barrgo.com/equipment/) were up 24% YoY in July marking the fifth straight month of upward trends.  June and July were the top two months for truck sales since December 2006 and this years sales have totaled 146,571 units through July.  The general strength of the U.S. economy is attributed to the cause.

In summation crude prices will not see a large uplift anytime soon, lower fuel prices are stimulating a number of sectors, and the improving economy is pushing demand for a various types of trucks.  It will be an interesting fall in the transportation sector.