Keep an eye on crude oil’s impact on freight costs
You may remember when freight rail costs went crazy back in 2014 due to the sharp increase in domestic U.S. crude oil production. As we reported back then: “U.S. crude oil production has surged since 2012, when fracking and other new drilling technologies opened (or reopened) previously unreachable domestic oil fields. In 2012, production reached 2.38 billion barrels, a record broken the next year when production rose over 14 percent, to 2.72 billion barrels. And through July 2014, crude oil production was 15 percent higher than that period in 2013. This level of production is more than our oil pipelines can handle, so petroleum producers have turned to rail transportation, severely increasing competition for the limited supply of U.S. railcars. Grain processors and exporters must increasingly delay shipments or try to find space in our nearly overloaded fleet of trucks and barges.”
Fast forward to 2018: U.S. crude oil production is breaking records. Production last year totaled 3.4 billion barrels, and production during Jan-Feb this year was up an estimated 14 percent year over year. EIA is projecting daily production this year to average 10.3 million barrels per day, smashing 1970’s previous record of 9.6 million barrels per day. Since 2014, U.S. pipeline capacity has increased, reducing the demand on our rail infrastructure. In 2014, for example, 382 million barrels of crude oil were moved by rail, and rail movement remained high, at 319 million barrels, in 2015. However, in 2016, crude oil rail shipments dropped sharply and remained low during most of 2017—but recent months have shown a distinct uptrend.
Will we see a return of spillover freight woes for ag commodities as large corn and soybean crops vie with crude oil for railcars and trucks? Growers in Canada are already sounding the alarm, telling legislators they are having trouble moving grains and oilseeds to port because “resurgent extractive industry activity has increased demand for limited rail cars, locomotives, and conductors,” according to USDA. The cost of transporting U.S. grain by rail has already increased slightly from last year, according to USDA data, and truck and barge costs have increased even more sharply. Transportation management will be critical this year and into 2019.
Truck, train, & barge cost fluctuation vs. U.S. crude oil production
Source: USDA, EIA
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