Diesel prices could spike by over 20% overnight due to the market coming to grips with the biggest blackswan event to hit oil in over a decade. On Friday night, while most of the U.S. was settling in for a weekend of high school, college and professional football, the world’s second largest oil producer was struck by a fleet of drones. The attack resulted in nearly half of Saudi Arabia’s oil production capacity taken off line, representing nearly 5% of global supply.
With futures markets closed over the weekend, it was hard to estimate how much the attack would impact prices, but on Sunday evening at 6PM ET, the oil futures market opened with the first trades up over 20%.
A 5% overnight supply shock is historically significant. According to Reuters, the last time oil lost this much supply over-night was during the 1991 Persian Gulf War. This weekend’s attack was more unexpected and unprecedented, because it did not involve large troop movements, just about a dozen unmanned drones.
Weekend news reports have warned that it could take weeks for the Saudi’s to resume normal operations as they assess the damage and deal with infrastructure repairs.
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According to the Diesel Truckstop Actual Price per Gallon in SONAR (DTS.USA), FreightWaves’ own daily truckstop retail assessment, the current national average of ultra-low diesel (ULSD) at truck stops is $2.98 per gallon. If a 20% surge holds, it could translate to an overnight increase of nearly $.60 per gallon at the pump.
This would have a massive impact on carrier profitability and put some of the carriers that are struggling from weaker operating conditions at risk. A $.60 per gallon increase could drive operating costs for truckload carriers up by nearly $.09 per mile. That big of an increase could translate to a 3-6% impact to truckload carrier profits.
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With operating ratios for August sitting at 99.46, any small impact to one of their largest variable costs would put them into the red. Normally, the larger carriers that enjoy fuel-surcharges would be able to pass on their increased costs to shippers in the form of fuel-surcharges. Unfortunately, for the truckload industry this will be unlikely for the next week.
Carriers tie their fuel-surcharges to The Department of Energy (DOE) weekly retail fuel assessment. The DOE weekly assessment of diesel prices at retail truckstop pumps, measures the price of retail diesel at nearly 400 stops. The data is published on the DOE site each Monday at 5PM ET, showing the prior week’s average prices. Carriers and shippers adjust their fuel-surcharge tables accordingly. A weekend spike won’t reflect the diesel surge from the attacks, since it happened outside of the prior week’s weekday assessments.
Carriers should plan accordingly. Many stops won’t change their retail prices until Monday morning when they have a chance to see how the wholesale prices shake out. Carriers that buy their fuel on wholesale rack prices would also be advised to fuel up as soon as possible before rack indices are adjusted. There is a lag of up to 36 hours between the financial markets movement and when the truckstops adjust their tables.
In other words: Fill up your tank before Monday morning
For participants with SONAR access, we update retail and rack diesel prices daily, while the DOE data (also in SONAR) updates weekly. It will be interesting to watch how these numbers move throughout the week.
George
The hell witt this now in California companies are paying less per mile they were paying 0.55. Per mile now they are paying 0.45 a mile I’m looking to see if this is legal. Can work with the mile pay.
Dic
The Rates need to increase anyway, they are already at a stupid low.
Dick
If the Democrats would let us use our own Fossil fuels, the impact might not be as severe.
Diana
I agree. I smell a powerful communist here. They are desperate to diminish the economy because They think it will get them elected.
Richard M Gaskill
Those familiar with the industry know some large OTR carriers limit drivers’ fuel purchases to only enough to make the next trip. I heard one of these carriers’ drivers telling a trainee they would call dispatch to get a load then buy fuel when the fuel card is loaded.
There are two reasons for this policy. It prevents underpaid drivers from selling fuel to other drivers and with high turnover it prevents drivers planning to quit from taking the trucks home.
Ed David
Let me Get this Straight in the Era of a Brazen Terrorist Climate etc.in the world of Today. The Place that is Essentially the Worlds Gas Station is Unprotected / Can’t Defend Itself.I ain’t Buying it. I Smell a Rat/ False flag. This Senario is Working to Benefit Someone’s Agenda. It’s Surely Not the People of Americas Benefit..Jets and Drones Can be Easily Defeated if Detected Early .. My Opinion.
Noble1
Anyone trading this commodity or familiar with trading will notice that price has been contained between certain ratio’s to perfection as well as reversing at a “confluence” of ratios . This my dear friend is not happenstance .
Now that being said , allow me to ask you a question . Are you familiar with who controls Aramco , thus the Saudi’s ?
If not dig a little in its history . Always follow your gut .It will lead you to connecting the dots ……………….
Donald
Yep, make everyone do a panic buy so it drives demand up sharply and increases the price…
Noble1
Quote:
“Truckers: Fill up your tank ASAP”
LOL !
And then what ? What about the next few days ,weeks , years ? And what if Oil prices drop ?
This site is quite entertaining . LOL !
Why don’t truckers just simply learn about trading the commodity ? It’s the most costly and vital part of their business , yet I am willing to bet that most if not all OO’s don’t trade the commodity too increase their profits and cut their costs .
Mr. Derrick Charles Malone Sr.
u sound a 4-wheeler who has no idea what you’re talking about
Noble1
I“m offended by that reply, LOL . What 4 wheeler shmeeler ??? I`m a one wheeler ! The ethical “dealing“ kind !
Quote:
“Definition of wheeler-dealer
: a shrewd operator especially in business or politics “
Now check out the NY Harbor ULSD Crack Spread October Futures .Notice the “ED undershoot“ in August ! Notice that thrust out of the ED(Ending Diagonal) at the beginning of September 2019 ! Do you know what the seasonal tendency is ? If so then you would realize that this was a no brainer if one connected the fundamentals with the technicals . And voila !
Now do you know where the “thrust“ typically tends to top out in such a pattern before it corrects ? I didn`t think so . I guess you would have to be a 4 wheeler to know, LOL !
If you understand what I just explained then you wouldn`t care about the price at the pump nor talk about the amount of wheels someone rolls on ! Capisce ?
How is that for your 4 wheeler assumption ? LOL !