Fleet Owner | Oil prices and freight rates: What to watch

02.23.16 | Kevin Jones, Fleet Owner

The price of oil, and the corresponding price of fuel and transportation, is a function of the global economy and production fundamentals. The combination has driven oil prices down more than 60% over the past two years-but that decline will reverse. The questions are when, and then how rapidly? And what will it mean for trucking?

“All everybody can say right now is oil prices are low,” said FTR economist Noël Perry during a session on fuel pricing and transportation, part of the recent FTR Virtual Conference. “But oil fundamentals-the things that drive this market in the long term, or even in the medium term-have a very substantial upside case.”

Perry attributed the price decline to an abundant supply, including additional production from a recovering oil industry in Iraq and, most immediately, to the 500,000 barrels per day coming into the market as the sanctions against Iran are lifted.The “caveat” in looking ahead, Perry explained, is that oil traders have a very pessimistic view of the world economy, compared to the consensus view of economists who anticipate some stability. But, if the traders are correct, falling demand will lead to falling prices comparable to 2009.

“So if the economy drops and we get recession, then oil prices will be low until the end of that recession,” Perry said. “But, assuming that doesn’t happen-which is what most economists are saying right now-then it falls back to fundamentals.”

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