What rail and road data can tell us about oil prices

Transportation indicators watched closely as price barometer

January 20, 2012

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Want to know where oil prices are headed in 2012? Examining transportation data is one way to discern if the value of a barrel of black gold is going the way of the bull or the bear. When the economy is healthy, people consume more and that means goods have to be moved to markets – usually by road or rail. Increased traffic in these transportation sectors, particularly in large markets like the United States and China, can be a bellwether for future oil demand.

Road

Rail

From November 2008 through to January 2010, OECD diesel demand – a key indicator of trucking activity – fell in 13 of the 15 months. But we can take heart that distillate demand in the U.S. is up two per cent compared to this time last year, an indication one of the world’s biggest economies isn’t totally in recession mode. Economic uncertainty has led to volatility in rail freight indicators. In the U.S., rail freight increased by 7.6 per cent in the first quarter of 2011 compared to 2010, 3.9 per cent in the second quarter and just 0.7 per cent in the third quarter. Still growth – even if it’s minimal – is better than the alternative.
A busy China usually means consumption is up globally and countries are importing Chinese products. Freight on highways in China increased by 15.3 per cent in August compared to July figures, resulting in an increase in demand for diesel. Rail freight volumes in China were up 5.9 per cent compared to July. It’s another sign that the goods the Middle Kingdom produces for the world are in demand again, which increase the need for oil and diesel.
Trucking companies are no doubt watching the progress of pipeline expansions like TransCanada Corp.’s Keystone XL. These pipes could drive up the price of oil and diesel, which was averaging US$3.825 per gallon in October. Costlier diesel isn’t good for the trucking sector. The rail sector has no interest in seeing the Keystone XL get built. Growing production from the oil sands and the Bakken and a lack of takeaway capacity has producers resorting to shipping more volumes of oil by rail. That business would dry up if new pipelines are built to the Gulf Coast.
Greece’s free-spending moves markets. The fate of the European Union’s bailout could either stem or create a global economic crisis. That got the trucking sector nervous. Recessions cut into discretionary spending and stall industrial output – always a recipe for less goods moving around the country. U.S. freight volumes are below pre-recession 2008 levels, but they have still been growing compared to 2010 thanks to a massive surge in coal and automotive shipments. But if the European Union’s bailout plan fails, economic growth and the increased movement of goods on rail that goes with it, will slow to a trickle.
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