Why the American Oil Boom Matters to Trucking

 

Freight Waves --- The United States is projected to produce more oil in 2018 than any other year in its history.  These two statistics—price and production—have profound implications for the American trucking industry.

Oil prices have an obvious importance to the petroleum-dependent transportation sector: high fuel costs make manufacturing and shipping costs go up and retail goods more expensive, depressing consumer demand and all other economic activity with it. Petroleum production, on the other hand, is correlated with demand for truckload miles: trucks haul workers, equipment, water, and frac sand to rigs, and haul oil and gasoline once it is extracted and refined.

Price and production, moreover, are related in complex ways. The result has been an overturning of the world petroleum order. The United States became the second-largest producer of petroleum, passing Saudi Arabia and trailing only Russia, and one of the world’s major exporters. The American oil boom caught OPEC and Russia off guard

America’s entry into the global market has ultimately been a stabilizing force: the goal is to keep prices high enough to make money for American producers while keeping it low enough for American consumers, to import less and export more.

Now we’re seeing a new order in the global oil market emerge: a Saudi Arabia-led OPEC establishes the floor on oil prices, while American production capacity creates the price ceiling. Oil’s range-bound stability should reduce volatility in fuel prices, while a healthy domestic oil industry consumes millions of truckload miles and stimulates the wider economy. 

One important oil market metric to keep an eye on for 2018 is the Brent-WTI spread, which is the price of a barrel of Brent crude minus the price of a barrel of West Texas Intermediate. A large positive spread means there’s a substantial discount for American (WTI) oil, which will encourage exports; a small positive spread or a negative spread means that there will be little incentive to export American oil to other countries.