Transportation Energy Price Risks Grow From An Intensifying Israel-Palestinian Conflict | Advisor Pulse

Note: We will discuss these developments and share our analysis for shippers’ transportation budgets, including energy and linehaul rate forecasts in our next Advisor Webcast on Thursday, October 19, 2023, at 2 P.M. CDT. An invitation will be shared soon. Please contact your client account manager for more information.

The recent military assault on Israel by Hamas and consequent Israeli air strikes on Gaza drove crude oil and transportation energy prices higher to begin the second week of October. Crude oil prices rose more than 3% on Monday due to fears of a broader conflict impacting global oil supply from the Middle East. The longer-term impact of the conflict remains speculative. Therefore, we maintain our forecast perspective that diesel prices will remain elevated and well above 2015 to 2020 price levels through our long-term forecast.

The Israel-Palestinian conflict will increase short-term price volatility for crude oil and energy products that are refined from it, like diesel. This is demonstrated by the week-to-week change in market price drivers. Last week, West Texas Intermediate (WTI) crude oil prices experienced the steepest decline since March, dropping by over 8% on account of growing concerns for weak international economic growth.

The escalation of the Israeli-Palestinian conflict is a significant worry for global supply chains, especially the energy market. While analysts deem it improbable, they recognize that Hamas has ties with Iran, and the possibility of the conflict spreading beyond borders exists.

The long-term implications of the latest deterioration in Israeli-Palestinian relations are speculative and join a list of market considerations when contemplating and budgeting for the cost of transportation energy during Q4 2023 and beyond.

It is worth noting that geopolitical risk does not influence the crude oil market as heavily as it once did. The market has grown accustomed to regional instability, and it typically does not disrupt energy product flows. The recent reorganization of oil and natural gas flows in response to sanctions on Russian energy demonstrates the energy market's adaptability to disruption.

To end 2023 and begin 2024, here are other considerations for transportation energy price risk:

Upside Price Risks

• U.S. crude oil and diesel inventories remain below their five-year average inventory threshold by 5% and 13%, respectively.
• OPEC+ crude oil production cuts – Saudi Arabia and Russia lead policy for a group of countries responsible for bringing more than 40% of the world’s crude oil to market. Saudi Arabia and Russia instituted unilateral cuts, equating to 1.3 million barrels per day until the end of 2023. It is possible OPEC+ also acts as a downward price risk by reducing its production cuts, but for now, its policies are pushing prices upward.
• Geopolitical risk – headlined by the Russia-Ukraine War and the intensified Israeli-Palestinian conflict.
• Carbon costs – The European Union’s Emissions Trading System will add cost to shipping containers in and through the European Economic Area beginning January 1, 2024. In Canada, increased carbon taxes will begin in April 2024. Carbon taxes and costs continue to change around the globe, beginning in April 2024.

Downside Price Risks

• Macroeconomic environment – U.S. gasoline sales dipped to their lowest seasonal point in 25 years during September, reflecting growing consumer headwinds. Other major markets, like China, also continue to perform below market expectations.
• Labor disruption – The United Automobile Workers (UAW) strikes may decrease freight demand. Additionally, a U.S. Government shutdown could result in widespread consumer headwinds because of lost wages for government workers and the businesses that supply the U.S. Government.
• The U.S. shale oil industry could provide a supply buffer if crude oil prices spike and encourage the industry to increase activity.

As a leading innovator in the transportation industry, Breakthrough closely monitors market developments and leverages data and statistics to provide valuable insights for our clients. Breakthrough is committed to being a trusted advisor to shippers’ transportation networks.

For more information, please contact your client account manager or email us directly at appliedknowledge@breakthroughfuel.com.