Inflation Affecting the Trucking Industry

Inflation Affecting the Trucking IndustryWith the pandemic end in sight, trailer manufacturers are playing catch up and battling strong demand that is not being offset by high prices. Manufacturers orders are backed up several months and they are renegotiating pricing with consumers due to the volatile market. Trailers are reaching new highs, carriers and manufacturers are paying premiums to meet the demand, and consumers are biting the bullet on the back end.

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Shot Heard Round the World…Vaccine Update

News of the Pfizer vaccine is spreading like wildfire around the world today. Covid-19 has killed more than 1.2 million people the world over. Today, Pfizer announced a vaccine that has a 90% effective rate with no serious safety concerns. If these numbers are to hold true, Pfizer’s new vaccine would hold up to the childhood disease vaccines like measles. Additionally, Pfizer says it expects to have 15 to 20 million vaccines ready in the US by year’s end provided the FDA issue emergency authorization later this month. They also predict to have over 100 million doses ready worldwide.[1]

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Market Drop

The most recent WTI drop of 2.9% is the largest in a month. Supply versus demand continues to be a curious topic that is the main driver of the current crude oil situation.   Oversupply of crude oil in 2020 continues as just in the past few days in the North Sea there are a combined 12 cargoes that have yet to find a buyer suggesting slow demand is taking place in the region.  

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Is the OPEC Deal Too Late?

OPEC+ reached an agreement to cut 9.7 million barrels per day (mb/d) beginning in May which is a record-breaking cut, but it still may not be enough to stabilize the market. U.S. Secretary of Energy Dan Brouillette said that the total number of cuts globally, when you add in all the non-OPEC countries, should be closer to 20 mb/d. In reality, the number is much smaller than that and will still have an impact, even if it’s not the cut some were expecting. The cuts will help prevent a complete meltdown, even if there is no immediate price rally. The deal is expected to stabilize the global oil price and reduce the market volatility according to Bank of America Merrill Lynch.

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Oil Freefall Continues

On the morning of Monday, January 6, 2020, WTI crude oil was nearing $64/bbl.  As of 10:31 a.m. EST on Thursday, February 27, 2020, WTI crude oil was trading at $46.36/bbl.  The shocking effects of the coronavirus fear continue to decimate global markets, particularly oil markets.  Fortune.com aptly points out that the coronavirus has done to the oil industry what the U.S. and China trade war, strikes on Saudi oilfields, Libyan supply outages, and a near war between the U.S. and Iran-could not.  The virus has thrown traders and analysts into complete turmoil.

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Trend Trading

If the quote “the trend is your friend” isn’t the true narrative of the energy complex over the past 20 trading days, I’m not sure what other phrase may be used to depict exactly what we have witnessed.  WTI crude for August delivery has had a 20.15% rally from its lows on June 12th to its highs on July 11th with only seven opportunities to buy lower on the day and watch it rally over the following days.  

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Supply and Demand

According to a survey by the Federal Reserve Bank of Dallas, the cost of profitably drilling a shale oil well in the US has fallen to a modern low of $50 per barrel, likely ensuring the growth of the onshore shale industry for years to come. The decrease reflects many factors including softer demand from refineries and concerns about the US-China trade war’s impact on global economic demand. The US oil benchmark is currently hovering near $63 per barrel. Cost reductions and increasing production should stop crude oil prices from rising to high.

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