- Oil has tumbled to as low as $25 per barrel for West Texas Intermediate (WTI), and the average U.S. diesel price per gallon has tumbled more than 10% since the beginning of March, according to the Department of Energy.
- Cheap oil building in inventories will not benefit the freight-oil sector of trucking, which was already troubled by a drop in U.S. shale-oil production, especially in Texas. In October, Dallas-based Stevens Transport's tanker division shuttered and laid off 586 people, according to Freightwaves. And if fleets negotiated fuel costs with shippers, they will not benefit from the cheaper fuel.
- WTI oil has averaged $50 per barrel over the last three years, according to Jim Meil, principal for industry analysis at ACT Research. The new lower price that oil companies receive discourages drilling, and flatbed and tanker fleets see less work. But on Sunday, OPEC and Russia came to agreement to cut production, likely increasing oil price, according to Bloomberg.
Cheaper diesel has drawbacks on an industry-wide level. "You have a mixed bag of effects," Meil told Transport Dive.
Meil said as with Stevens Transport, any fleet in oilfields will see less drilling and transport. Some of those fleets will likely have to cease operations and lay off drivers, he said.
The lower diesel prices even discourage the purchase of newer, more fuel-efficient Class 8 tractors, Meil said. OEMs and dealers usually rely on touting fuel savings to buyers. When diesel prices drop, the sales pitch becomes harder, Meil said.
"It's just a tougher sell," said Meil. "You lose that sales edge."
For fleets in general, the lower diesel prices were somewhat unexpected, Meil said, as the conventional wisdom was diesel would go up in cost because of a mandate from the International Maritime Organization on shipping fuel.
On Jan. 1, ships were mandated to stop using bunker fuel, in favor of a low-sulfur fuel that drew from the same distillate stocks as diesel for trucks. But the coronavirus struck, idling ships and keeping people, from China to New York City, at home.
At the same time, OPEC leader Saudi Arabia got into a price war with Russia, undercutting the latter's sales by shipping cheap oil to Europe. World oil prices plunged.
The effect from the COVID-19 crisis has been demand destruction for oil. U.S. diesel prices averaged nearly $2.55 for the week ending April 6, according to the Department of Energy. That is down 10.6% from the week ending March 2, and down 17.6% from the week ended April 8, 2019.
Oil-producing nations are trying to negotiate a way out, to keep their energy industries from being hurt. Denton Cinquegrana, senior analyst for the Oil Price Information Service (OPIS), told Transport Dive that OPEC and Russia want a production cut of 10 million barrels a day.
Sunday, OPEC and Russia just about got what they wanted, as they worked out a global agreement to cut production by 9.7 million barrels a day, according to Bloomberg.
World production averages 100 million barrels a day, Cinquegrana said. Cinquegrana said Russia and OPEC would ultimately like 20 million barrels of oil a day cut from that production, but he called that goal "wishful thinking."