By Alex Longley, Jeffrey Bair and Javier Blas sure 10/28/2020
(Bloomberg) – Look across the street from your home office window: you’ll likely see a delivery van.
Trucks from Amazon.com Inc. and other e-commerce companies have become ubiquitous during the pandemic. Across much of the industrialized world, an ever-increasing number of vans, trucks, trains and ships carry everything from offices to smartphones, as consumers turn to online shopping and businesses replenish their supply chains. after months of disruption.
For the oil market, this is a potential boost: in a world ravaged by the coronavirus, freight is growing again, in some regions rapidly. And that means diesel.
“Truck traffic is on the rise,” said Gary Ross, a seasoned oil market observer and managing director of Black Gold Investors LLC. “People have money and don’t spend it on going to the theater, they buy goods.”
Official statistics reflect what many can see from their window. In the United States, for example, large trucks have driven 5% more kilometers in the past four weeks than a year ago, according to data from the United States Federal Highway Administration.
Freight companies are also confirming the recovery. James Foote, managing director of CSX Corp., one of the largest rail companies in the United States, said volumes ended the third quarter above pre-Covid levels. US trucking companies, facing a shortage of drivers and high demand, reject about 25% of requests for their business, down from just 6% on average in 2019, according to Zach Strickland, head of market intelligence for FreightWaves .
“We had an increase in business and no one really saw it coming,” he said.
The trend is important for the oil market, as trucking accounts for about 16% of global oil consumption and almost half of all diesel demand, according to 2019 data from the International Energy Agency.
The push is expected to intensify in the pre-Christmas shopping frenzy. The delivery company DHL, owned by German Deutsche Post AG, expects its maximum shipping quantities to be 50% higher than in the same period last year.
There is also an increase in freight from companies restoring inventory in supply chains that have been disrupted by the pandemic – from car parts to children’s toys.
“As we speak to our customers, more specifically our overseas customers, they always see an opportunity to replenish,” said Keith Reardon, senior vice president of product growth and supply chain at Canadian National Railway Co.
The diesel market has struggled since the onset of the coronavirus pandemic as the collapse of air transport forced refiners to push unwanted jet fuel into diesel production. This, in turn, inflated diesel inventories, lowering prices. As a result, profits from fuel production remain close to $ 3 a barrel, the lowest for this time of year in at least a decade.
While the rebound in freight is helping oil prices, crude is still languishing at around $ 40 a barrel. Demand in the general market is limited by the resurgence of the virus and the outlook is fragile.
There is also a risk that the resupply surge could cause a business vacuum down the line, wrote Drewry Shipping Consultants Ltd. in a report. This would mean that at least some of the additional demand will decline by the start of next year.
But for now, thousands of miles of sprawling highways are teeming with trucks delivering goods. In the UK, weekly figures show that heavy truck use exceeds recovery in any other type of vehicle. It’s a similar picture on German roads, where kilometers driven by large trucks have been at pre-pandemic levels since May.
According to Kristian Kaas Mortensen, director of strategic partnerships, Lithuania-based Girteka Logistics, one of Europe’s largest truck owners, has added 500 trucks to the 7,000 it already owns as it rides the wave of domestic consumerism.
“People have to feel good, they need to spend.”