TRANSPORTATION OF OIL ACROSS COUNTRIES MANAGEMENT TRENDS

AND CHALLENGES. (2018-2022)

EZEOGU EMMANUEL

2018030185963

DEPARTMENT OF COMPUTER ENGINEERING, FACULTY OF

ENGINEERING, ENUGU STATE UNIVERSITY OF SCIENCE AND
TECHNOLOGY (ESUT).

AUGUST,2022.
 APPROVAL PAGE

This project “TRANSPORTATION OF OIL ACROSS COUNTRIES

MANAGEMENT TRENDS AND CHALLENGES (2018-2022)”.

BY.

………………………………………………….. ……………………………………….

(supervisor) Date

………………………………………………….. ……………………………………….

(Head of Department) Date

………………………………………………….. ………………………………………

External Examiner Date

 ACKNOWLEDGEMENT

I want to appreciate my project supervisor, Dr. H.N Nwobodo, criticisms and

guidance during the course of this work Also, permit me to say a big thank you
to Dr. , HOD department of computer engineering, for her motherly role
in seeing this project work becoming a reality. To my wonderful lecturers,
thanks a lot.
 TABLE OF CONTENTS

A. Title page

B. Approval pages approval pages

C. Acknowledgement

D. Table of contents

E. Abstract

F. Section Headings

G. References
CHAPTER ONE- INTRODUCTION

1.1 Background to study

 ABSTRACT
Crude oil plays an important role in economic activities, with
both commodity attributes and financial characteristics.
Through comprehensive review of the literature on crude oil
prices, the following phenomena are presented. First, the
forecasts and risk management of crude oil prices are still
important topics when researchers conduct studies, however,
the uncertainty of economic activity has aggravated the
fluctuation of crude oil prices. Second, factors from supply
side and demand side are main drivers of movements of crude
oil prices, and investor sentiment gradually becomes an
important factor affecting the expected level of crude oil
prices. Third, economic activities and financial stability are
influenced by shocks of crude oil prices, meanwhile, many
studies confirm the asymmetric effects. However, due to
changes in the external environment, more complex nonlinear
time-varying features are exhibited. In addition, the advent of
text mining technology and artificial intelligence technology
provides new and effective methods for forecasting the trend
of crude oil prices and conducting risk measurement in crude
oil market.
 CHAPTER ONE

INTRODUCTION

1.1 Background to the study

In a lay man world transportation is the movement of solid

liquid and gas from one location to another. Modes of
transport include air, land, water cable pipeline and space.
The field can be divided into infrastructure vehicle and
operations. Transport enables trade between people, which is
essential for the development of civilization. Transport
infrastructure consist of fixed installations include roads
railway, airways, waterways, canals, and pipeline and
terminals such as airports railway station, bus station
warehouse trucking terminals, refueling depots, and seaports.
Terminals may be used both for interchange of passengers and
cargo for maintainance.
Crude oil is raw natural resources that is extracted from
the earth and refine into product such as gasoline, jet fuel, and
other petroleum products. Crude oil is a naturally occurring
mixtures of hydrocarbon found underground. The color of
crude oil can also be range from light yellow to dark brown or
black. It is one of the most widely and oil as well as oil
derivatives, are globally traded in oil markets. Crude oil may
also be reffered to as just crude or oil. This fuel source must be
refined before it can be used. it falls under the category of
petroleum products.

Oil was discovered in Nigeria in 1956 at Oloibiri in the Niger

Delta after half a century of exploration. The discovery was
made by Shell-BP, at the time the sole concessionaire. Nigeria
joined the ranks of oil producers in 1958 when its first oil field
came on stream producing 5,100 bpd. After 1960, exploration
rights in onshore and offshore areas adjoining the Niger Delta
were extended to other foreign companies. In 1965 the EA
field was discovered by Shell in shallow water southeast of
Warri.
In 1970, the end of the Biafran war coincided with the rise in
the world oil price, and Nigeria was able to reap instant riches
from its oil production. Nigeria joined the Organisation of
Petroleum Exporting Countries (OPEC) in 1971 and
established the Nigerian National Petroleum Company
(NNPC) in 1977, a state owned and controlled company which
is a major player in both the upstream and downstream sectors.
Following the discovery of crude oil by Shell D’Arcy
Petroleum, pioneer production began in 1958 from the
company’s oil field in Oloibiri in the Eastern Niger Delta. By
the late sixties and early seventies, Nigeria had attained a
production level of over 2 million barrels of crude oil a day.
Although production figures dropped in the eighties due to
economic slump, 2004 saw a total rejuvenation of oil
production to a record level of 2.5 million barrels per day.
Current development strategies are aimed at increasing
production to 4million barrels per day by the year 2010.
Petroleum production and export play a dominant role in
Nigeria's economy and account for about 90% of her gross
earnings. This dominant role has pushed agriculture, the
traditional mainstay of the economy, from the early fifties and
sixties, to the background.
Crude oil needs to move. To get from oil wells to refinery and
storage facilities, millions of barrels of crude oil need to be
transported in one form or another to ultimately become end-
use products. After oil companies successfully extract oil
products from the ground, they must consider infrastructure,
geography and cost implications to determine the best mode of
transportation. The best options for their energy supply chain
will move products while minimizing costs and maximize their
bottom line.
Which Crude Oil Transportation Method is Best?
Oil and refined products are transported twice throughout the
crude oil supply chain: first upstream from wells to refineries,
and then downstream from a refinery to the market. 
Ranked cheapest to most expensive, oil products are moved
via the following methods of transportation:
Pipeline
Marine Vessel
Rail
Truck
Pipeline Transportation of Crude Oil

Crude oil pipelines are the most common, safest, and cheapest
of all modes of crude oil and refined product transport. With a
high upfront investment cost their long-term payoff comes
from decades of use. Pipeline networks are built to transport
crude oil from nearby oil wells to oil tankers long distance. 
Crude Oil Transportation By Ship
Marine transport, largely via barge or tanker, is the second
cheapest mode of oil shipment. This is especially true for
companies that export crude oil internationally. The world
tanker fleet currently contains approximately 4,200 vessels, 85
percent of which are owned by independent tanker companies
with the sole purpose of transporting oil products from border
to border. Smaller vessels typically transport “clean cargoes”
which are refined products such as gasoline, diesel, and jet
fuel. Large tankers—averaging 2 million barrels of crude oil
per movement—however, carry dirtier cargoes like crude oil
and unrefined commodities.
The global vessel fleet faces several operational constraints.
To satisfy global demand and facilitate the adequate flow of
crude oil to appropriate markets, high traffic areas often
experience chokepoints. 
Transporting Crude Oil by Rail

Crude oil movements by rail spiked in 2013, increasing by

roughly 31 percent from 2012 values. This was due in large
part to the domestic oil boom that flooded surplus oil into the
US market. This excess created insufficient pipeline capacity
and opened the door for rail transport as the next-best
alternative to move oil. That said, crude-by-rail movements
have decreased since 2015. As the WTI-Brent price spread
narrows and pipeline capacity expands, pipelines once again
become more optimal.
Not all oil wells are accessible via pipeline, making rail the
most financially feasible option for accessing land-locked oil
wells that later feed the refining landscape. The sustained
growth of US shale production has increased domestic
production to record levels, again creating pipeline capacity
concerns and increasing overall utilization of rail transit.
Crude Oil Transportation by Truck

Over-the-road transportation is the most expensive and

inefficient means of crude oil transportation. The amount of
crude oil an average truck can transport is only between 200-
250 barrels of oil per movement. This makes it an expensive
and inefficient option. This method is typically utilized only
when wellhead locations are not accessible by pipeline or rail
networks, or for short distances during final-mile segments of
the movement. 
Crude oil is often a central tenet of headlines and boardroom
discussions because its demand is widespread and its price is
volatile. Crude oil is almost always a basic supply and demand
equation: how much oil does the marketplace need, and how
much is available? This balance determines prices which, in
turn, influence trade dynamics, policy decisions,
environmental effects, and the bottom line for manufacturers,
retailers, and shippers who are key consumers of crude oil
products.
In terms of supply, a few large players have historically had a
majority of the influence, most notably, a cohort of oil-
exporting countries called the Organization of Petroleum
Exporting Countries. This group is commonly known as
OPEC.
What is the Purpose of OPEC?

OPEC is a cartel of oil-producing countries that unites

under one common goal: to maintain and stabilize
international crude oil prices.
OPEC has the capacity to produce just over one-third of the
world’s oil, which makes even slight changes to their
collective output more notable than most other exporters.
Since their inaugural meeting in Baghdad in September of
1960, OPEC maintains its mission to “coordinate and unify the
petroleum policies of its Member Countries and ensure the
stabilization of oil markets in order to secure an efficient,
economic and regular supply of petroleum to consumers, a
steady income to producers and a fair return on capital for
those investing in the petroleum industry.” 
Balance is key, and maintaining a profitable price point
without over-restricting the marketplace remains the
organization’s main goal.
Founding members Iraq, Kuwait, Iran, Saudi Arabia, and
Venezuela created OPEC to monitor the crude oil prices and
make collective decisions about how much they need to
produce to remain profitable. If prices are high, the cartel has
room to produce more. When prices sink lower and demand
disappears, the group will limit their output until supply and
demand are more balanced. Conversely, in a tighter oil market
where supply and demand are closer to equilibrium, their
satisfaction with prices makes intervention less likely.
Prior to OPEC’s formation, price dynamics were often
determined by a series of U.S.-dominated multinational oil
companies. As OPEC has grown to include a contingent of
allies, like Russia, OPEC(+), or the Vienna Alliance, now
includes over 18 countries, supplying over one-third of the
world’s crude oil production and controlling more than 80
percent of the world’s proven crude oil reserves.
Today, these representatives meet twice a year in Vienna,
Austria, where they collectively decide whether to raise or
lower oil output to maintain a stable market. Such
manipulation of supply has historically been an effective
means of oil price control for the cartel. But this is changing in
today’s U.S.-centric oil market and amid crude oil price
disruptions caused by the pandemic.
How do the Actions of OPEC Influence Worldwide Trade? 

OPEC’s supply decisions could be viewed as either a

mechanism to secure consistent oil supply or as a method to
maintain prices at a profitable level for their organization.
Regardless, it’s also important to view the larger story of
production and consumption worldwide when evaluating the
organization’s historical impact. 
With more than three-quarters of the world’s proven oil
reserves controlled by member nations, OPEC has historically
modulated prices with the knowledge that most countries
could neither compete with its abundant oil reserves nor create
a competitively viable energy alternative. Because of this, a
cyclical market dynamic naturally develops.
Increasing Relevance of Non-OPEC Players

In the years of economic expansion that characterized the early

2000’s, OPEC’s stabilization efforts were effective. Large
global economies like the U.S. and China expanded and
increased demand sending oil prices toward highs near USD
$140.00 per barrel. 
A side effect of these high prices, however, was that it also
made it profitable for non-OPEC countries to develop and test
new ways of exploring and extracting oil at home. This
prompted the U.S. to develop new shale oil extraction
techniques to become profitable producers in this high-price
environment.
The price of oil remains arguably the most important price
within the world economy and creates much of the price
volatility across transportation energy products. In 2020, the
corona virus pandemic, a price war waged between prominent
oil producers, and a global recession led to record-low oil
prices within the U.S., and some of the lowest transportation
energy costs we have seen in years, if not decades.
Markets moved on. Oil prices climbed through the fourth
quarter because the world grew more optimistic for economic
recovery and improved demand for transportation energy.
Lower oil production, low refinery utilization, and even
bankruptcy and consolidation led to historic supply-side
contractions.
What will these market dynamics mean for transportation fuel
costs in 2021?

While there are plenty of plausible outcomes for energy

markets in the year ahead, this post focuses on Breakthrough’s
core forecasting considerations used when advising shippers
on the energy costs to move their goods to market.
1. Don’t Forget About Market Fundamentals.

For shippers, U.S. crude oil inventory analysis is important

because these economic fundamentals offer helpful price
guidance for diesel fuel. Crude oil typically accounts for 45-55
percent of the ultra-low sulfur diesel price and is the most
volatile portion of the diesel price buildup.
Oil inventories ballooned to their highest levels on record after
demand for refined products—especially transportation fuels
—cratered during spring lockdowns. The chart below
highlights the relationship between U.S. crude oil inventories
and crude oil prices during the past five years. Among other
key benchmarks, this chart shows crude oil inventories
reached a high point of 42 days of supply because of the
demand destruction brought on by the pandemic. This historic
inventory build reached its peak in mid-May.

Crude oil inventories fell to 35 days of supply at the end of

2020, more than seven months after they reached their peak. In
comparison, the average inventory level for U.S. crude oil
during the past five years was 29 days. This shows crude oil
inventories have decreased significantly from their pandemic-
induced peak but there continues to be surplus crude oil that
needs to be removed from storage in order to reach average
levels and, as a result, likely higher prices.
Crude oil prices—and consequently diesel prices—rose
rapidly in November and December in response to vaccine
announcements and changes in production-cutting policies
from the Organization of Petroleum Exporting Countries and
its allies (OPEC+). Crude oil inventories, on the other
hand, actually grew versus their five-year average, which
usually implies downward price pressure onto the price of a
barrel of crude oil. These opposing dynamics left crude oil
prices near the top of their historic range for the level of
supply in storage at the end of 2020 (35 days of supply).
The end of 2020 showed a crude oil market moving on
sentiment rather than underlying crude oil economics. Looking
again at the previously introduced chart, we can see the
average crude oil price per barrel is relatively tight from 35 to
27 days of supply—where the market is likely headed over
2021—with a range of about +/-$10 per barrel. Additionally,
prices rarely surge above $60 per barrel until inventories fall
lower than the 27 days of supply mark. These are a couple of
the fuel price considerations we make in our assessment of a
slowly recovering market and low crude oil price ceiling
through 2021.
2. History Will Continue to Offer a Helping Hand

Diesel demand caught up to 2019 levels in December 2020.

Gasoline and jet fuel sales remained about 13 and 30 percent
lower, respectively, year-over-year. Why the disconnect
between transportation fuel types?
Freight demand soared for many industries during 2020
because consumers shifted their wallet share from spending on
services to goods. In fact, freight demand soared despite total
consumption in the U.S. remaining nearly five percent lower
through 2020 (by our estimates) than where it otherwise may
have trended if the pandemic did not occur (see the chart
above).
While diesel demand was relatively thriving, gasoline and jet
fuel demand languished from greatly reduced business and
leisure travel. Refiners reduced their production to account for
this consumer behavior. U.S. refinery utilization—or the
amount of refining capacity being used to create products like
gasoline, diesel, and jet fuel—stayed near 80 percent and far
below its pre-pandemic level to end 2020. In comparison, from
2015 to 2019 it averaged more than 91 percent.
The moves made by refiners to reduce production meant far
less diesel fuel was being produced despite its demand holding
up relatively well, unlike many other refined products. This
drew diesel inventories near their five-year averages. The
diesel commodity premium above the crude oil it is
manufactured from (or crack) gradually increased. These
dynamics boosted diesel prices, especially during Q4 2020.
The return of demand for fuels used in passenger
transportation will encourage refinery utilization to increase
toward pre-pandemic levels. As refiners produce more
gasoline, the refining process will also put more diesel into the
market, with the increasing diesel supply likely weighing
down prices. These dynamics occur routinely because refinery
utilization annually ratchets up for the summer driving season
in response to greater gasoline demand and its seasonally
higher price premium.
Operation Warp Speed has a stated goal of vaccinating 80
percent of the U.S. population by late June. If this goal is met
and refinery utilization increases as the number of vaccinated
Americans grows, then the seasonal cycle of increasing
production of transport fuel may put downward price pressure
onto diesel fuel. Seasonal fuel demand caused diesel prices to
fall from May to June during nine of the past 11 years.
Oil prices may gain support through the coming summer as
economies rebound after more prolific vaccination, but higher
refinery utilization could still offer this downward pressure
onto diesel as a unique transportation commodity, with market
dynamics of its own. These dynamics would be difficult to
contemplate without the aid of historic trends and data.
3. There is Strength in Numbers

Breakthrough’s services enable precise fuel and freight

forecasting. We capture data from about 60,000 daily freight
movements that equip us with near-real-time market intel to
project the budget impact of events like a tightening freight
market and state fuel tax increases. While this transparency to
precise data is critical for forecasting, this third principle goes
far beyond a single numerical output.
Our forecasting teams routinely gather to challenge market
perceptions and individual perspectives. These meetings and
conversations collect our diversity of thought and create a
broader knowledge base for forecasting. The growth of our
team, client base, and broader industry network continues to
grow our forecasting potential. This synergy is particularly
beneficial in volatile transportation and energy markets to
avoid impulsive behavior that leads to under or over-reacting
to change.
This allows us to cut through the noise of market chatter to
give shippers a full understanding of the price influences
affecting their supply chain strategies.
Help Your Forecasting Evolve in Volatile Markets

The amount of data and information discussed during a normal

business cycle can be overwhelming, so when disruption
occurs, and cycles become volatile, it is beneficial to elevate
forecasting principles. Whether focusing upon the energy
consumed or the volumes moved across a transportation
network, focusing on market fundamentals, drawing
comparisons with past markets, and challenging perspectives
through a diversity of thought will enable organizations to cut
through the noise and keep budgets connected with market
dynamics.
Throughout 2020 the term “unprecedented” was the buzzword
of the day for all industries, but even more so for transport and
logistics trends. Every corporate email, blog post, report, and
headline seems to heavily lean on this language, and despite its
fatigue across publications, it remains accurate and relevant to
the turbulence of 2020.
When we reflect on all that our shipper clients faced
throughout the year, it is difficult to weed through the supply
chain chaos brought on by the pandemic. From crude oil to
freight flows, unemployment, and the general shift in
consumer behavior, records were set and our “new normal” in
transportation and logistics will continue to evolve well into
2021.
Below is a list of past market events, emerging trends across
the supply chain industry, and an analysis of how some of
these unprecedented 2020 events will continue to influence
transportation strategies moving forward.
1. OPEC+ agreed to the largest production cut in its 70-year
history.
The Organization of Petroleum Exporting Countries (OPEC)
and its allies (+) agreed to aggressively reduce crude oil
production in an attempt to balance the market and restore
prices during the height of COVID-19’s demand destruction
earlier in 2020. OPEC members pledged roughly 6.1 million
barrels per day (mmbd), while their additional allies (OPEC+)
pledged an additional 3.6 mmbd for a whopping total just shy
of 10 mmbd. The cuts were set to incrementally decrease over
time, starting with 9.7 mmbd for May and June, reducing to
7.7 for the rest of 2020 and then enduring at 5.8 until April
2022. 
The need to reduce at such a drastic rate comes on the heels of
a price war between Saudi Arabia and Russia, historically high
U.S. production levels, and exacerbated demand shocks from
corona virus lockdowns. The result was an overwhelming
surplus of crude oil supplies that sent crude oil prices
careening into the negative.
Most member countries achieved compliance with the group’s
collective 9.7 and 7.7 mmbd cuts from May-August and
September-December, respectively
Looking Ahead: Evolving Market Fundamentals Keep The
OPEC+ Production Strategy Fluid

These cuts, while warranted, are now the cause of contention

inside OPEC+ meeting rooms. Producers have grown wary
about continuing to restrict production and concede market
share. This is especially true since output in some competing
nations has started to rebound as a result of more favorable
market conditions.
The group planned to bring back nearly 2 mmbd of production
beginning in January 2021 and follow that course for 15
months. The progressive shift in market dynamics, however,
and the potential lack of need for more supply, complicated
the cadence and terms of future negotiations. OPEC+ will now
take a more conservative approach and reassess the market
monthly.
In doing so, they are expected to make minor production
adjustments until they have a holistic grasp on the COVID-19-
dependent demand outlook and the market’s general direction.
The divide between some countries’ goal of rebuilding market
share and others of boosting prices at the expense of raising
production leaves longer-term OPEC+ supply contributions
unclear.
2. Crude Oil Prices Sunk Below Zero

With that in mind, it is important to make a separate mention

of the plunge in crude oil prices experienced on April 20th,
2020. As demand sunk for crude oil and refined products, the
excessive production on the supply side tipped the scales of
the supply and demand balance leading to a flooded market.
This became particularly problematic for crude oil futures
contract holders at the time. Most often, these entities simply
buy and sell futures contracts without ever physically having
barrels of crude oil in their possession. But in April 2020,
when futures contracts were set to expire and the country’s
storage and infrastructure were near capacities, futures traders
were literally left with millions of barrels they couldn’t sell,
store, or move. The result: prices were driven so low they
would pay to have oil taken off their hands, which was
additionally reflected in unpalatably low gasoline, jet fuel, and
diesel fuel prices.
Looking Ahead: Crude Oil Prices Remained
Extraordinarily Turbulent Through 2020

Most crude oil price volatility in 2020 was directly connected

to the demand destruction associated with the pandemic. The
sweeping lockdowns and movement restrictions that followed
the virus’ spread took with it the need for transport fuels and
the crude oil required to produce them.
Despite the historic oil price crash seen in Q2, the oil market’s
cyclical nature soon lifted prices out of the depths and into
positive territory.
Prices remained abnormally low in the $15-$30 per barrel
range temporarily before gradually rising on the back of global
supply restraints and a cautious demand rebound through the
summer. The pandemic’s unwavering spread continued to
weigh on market fundamentals and prices until the
materialization of vaccine optimism reversed the narrative
toward the end of 2020.
Now, the targeted rollout of a viable vaccine appears to have
pushed the energy market in the right direction, albeit
timelines around a full-fledged recovery remain in question.
Oil prices have settled into the range bound territory between
$40-$50 per barrel in recent weeks, a far cry from the sub-zero
mark that was hit in April.
3. The U.S. reached a new record-high for domestic crude oil
production.

The U.S. oil industry was expanding rapidly in the years

leading up to 2020. The government’s push to become energy
independent and assert the country as a global energy
powerhouse propelled the nation up the world energy ranks. 
Ever since the shale oil boom in the 2000s, made possible by
advancements and use of fracking, U.S. crude oil production
has become increasingly efficient, making the increases
possible. As a country, we achieved energy independence in
late November 2018, and have continued a nearly steady
upward trajectory until the dramatic dip felt in March of 2020.
In early 2020, domestic crude oil production surpassed 13
mmbd, making the U.S. the world’s largest producer and one
of the most influential players in the international energy
landscape. Then, the COVID-19 pandemic changed this
trajectory.
Looking Ahead: The U.S. Record Production Fell to a
Multi-Year Low Before Making Slow Gains

The crude oil price crash made it economically unviable for oil
companies to keep their taps open. In turn, domestic oil
production fell by more than 25 percent to less than 10 mmbd
in August, the lowest output totals since January 2018. The
rapid decline in domestic production essentially led the U.S. to
give back nearly three years of the growth it had gained in the
middle of its climb toward world energy prominence.
Domestic oil production has recovered to about 11 mmbd as
producers are finally able to turn a profit with oil prices north
of $45 per barrel. These recent gains might soon stall because
inflated inventories may lead to a price plateau as we await
more widespread distribution of the COVID-19 vaccine.
4. Diesel fuel prices hit their lowest in the history of Fuel
Recovery.

Because of the relationship between crude oil prices and the

cost of its refined products like gasoline, diesel, and other
products, wholesale diesel hit its lowest price in the history of
Fuel Recovery, Breakthrough’s market-based fuel
reimbursement service offering.
Crude oil is one of the largest and most volatile components of
the diesel price buildup. Any major oil price swings often lead
to a comparable price change at the pump, at least
directionally. So, like the oil price crash endured in the second
quarter, diesel prices followed suit. The same market forces
that tanked the oil market drug wholesale diesel prices down to
their lowest level seen in the 16-year history of Breakthrough.
Looking Ahead: Wholesale Diesel Prices Are Finally
Approaching Pre-Pandemic Levels

Since falling to below $1.40 per gallon in April, the wholesale

diesel market has slowly but surely bounced back. A myriad of
factors contributed to this behavioral price shift, but most of
the price gains seen in the past six months have been tied to
the momentum in the crude oil market. Another important
factor is diesel’s resilience due to its prominence in
commercial transportation. At present, national average
wholesale diesel prices are over $2.20 per gallon. This is a
price point last seen in February before COVID-19 was a
major issue in the United States.
5. Fuel Recovery clients saw the highest DOE to Wholesale
price differential, resulting in the greatest savings potential in
the history of the service.

Breakthrough Fuel Recovery clients realize the value of our

fuel reimbursement solution on every movement, every day.
But in times of heightened uncertainty when prices swing very
quickly, this value is maximized. In Q2 of 2020, market
conditions led to an average of nearly 74 cent savings on a per-
gallon basis—which is nearly 25 cents beyond the previous
year-averaged record. The DOE-to-wholesale spread also hit
its highest single-day record on April 27, surpassing 114 cents
per gallon. 
Spreads were about 40 percent higher in 2020 than in 2019
and closed the year over 55 cents per gallon. This mark is not
entirely indicative of the milestones achieved this year,
though. Spreads topped out at nearly $1.15 per gallon at a
national level and remained over 50-60 cents for most of the
year. The recent upside price pressure in the crude oil and
diesel market has brought spreads down to more normal levels
between 30-40 cents per gallon, but the Breakthrough
Advantage remains strong.
Looking Ahead: DOE-Wholesale Differentials Have Slowly
Returned to Historic Norms, But Fuel Recovery Value
Remains

Spreads tend to be more advantageous in a downward trending

fuel market since retail prices rarely move at the same pace or
magnitude as the wholesale market. With this in mind,
Breakthrough clients saved more on fuel in 2020 than they
ever had before. The pandemic’s energy market influence
caused massive a differential (i.e. spread) between fuel prices
under a traditional fuel reimbursement method and those
captured by Breakthrough. This ultimately shined a bright
light on the value of a market-based fuel management program
and significantly lowered client fuel spend.
6. Unprecedented Movement Across Economic Indicators

The wider industry trends in 2020 have resulted in economic

activity that surpasses many previously experienced extremes.
The most notable economic records of importance to
shippers and freight volume include:

Continuous jobless claims rose as high as 24.9 million at the

start of May 2020 to hit an all-time high in recorded history.
Continuous claims remain around 5.5 million, roughly 3.8
million above pre-pandemic levels.
The unemployment rate rose to a record 14.7 percent,
recording 22.2 million net job losses in March and
April. This is equivalent to all the jobs created in the U.S.
over the past decade and is more than double the jobs lost
over the 18-month period of the Great Recession (December
2007 – June 2009). The U.S. economy has regained 12.3
million jobs, but remain 9.9 million below February 2020
levels. 
The personal savings rate rose 25.4 percentage points
peaking in April, setting a record for the largest sudden
increase and record high hitting 33.7 percent.
 Consumer Sentiment experienced the largest one-month
drop in history, decreasing 17.3 percent, surpassing the last
drastic drop in October 2008.
Consumer loans decreased by $110 billion dollars since
reaching a ten-year high on January 1, 2020.
Economic Policy Uncertainty Index rose higher than it did
during the Great Recession and higher than in any other
previous period in a matter of days.
Looking Ahead: Continued Disruption For Status Quo
Economic Activity

While many of these are not directly reflective of

transportation trends, freight volumes, and other sector-
specific indicators, each is interconnected with the way
consumers and organizations purchase goods, and in turn, will
continue to affect supply chains.
Understanding how economic activity and consumers will
influence your unique transportation network will be crucial to
navigating your strategic roadmap in 2021.
7. Trucking Industry employment had the largest one-month
drop in its recorded history.

The truck transportation industry lost 96,700 jobs in March

and April, representing the largest one-month drop on record. 
As the entire economy suffered from job losses, transportation
was no exception. The one-month drop is equivalent to losing
all the trucking jobs created since November 2014.
Looking Ahead: Trucking Industry Employment Remains
in Step with Other Industry Professions

Since the sudden drop, truck transportation only has regained

roughly 43,800 jobs while the industry competes with other
more attractive blue-collar professions, like warehousing,
residential construction, and local delivery jobs.
It is no secret the COVID-19 pandemic transformed the global
energy market in 2020. The virus’s extraordinary hit on crude
oil and transportation fuel consumption—and the ensuing
price crash—leaves the market wondering if, and when, a full
price recovery would occur.
The current market sits in a state of significant oversupply and
historically low demand – resulting in a dramatically flooded
crude oil market. To correct the low-price environment, supply
and demand will need to be rebalanced—a simple economics
problem, complicated by nearly 30 percent of built-up crude
oil inventories.
For oil companies and some economies that are dependent on
healthy crude oil prices for their financial success, taking steps
to rebalance the market will be imperative. Because of the
magnitude of the downturn experienced thus far in 2020, the
urgency these players will feel to achieve recovery raises the
possibility of a market that overcorrects itself.
If too many factors swing too quickly, the scales will tip and
send prices in the opposite direction. This becomes possible if
transport fuel demand makes a resurgence and supply
continues to come off the market at its current pace. After all,
high prices cure high prices, and low prices cure low prices.
2020 Crude Oil and Transport Fuel Price Behavior
The crude oil and wholesale diesel price freefall that
consumed most of the first and second quarters of 2020 has
now begun its slow but steady recovery. Economies in the
U.S. and abroad are taking steps to return to a revamped state
of “normal.” For crude oil suppliers, that will require a
motivated effort to lower production, deplete inventories, and
boost prices.
Collectively, this has offered cautious optimism that the global
supply-demand gap will tighten, and diesel prices will
gradually rise. National wholesale diesel prices have regained
over 35 percent of their value since dropping to the lowest
level in the 16-year history of Breakthrough at the end of
April.
Recent momentum suggests prices likely will not fall lower
than what was seen earlier in Q2. These market developments
may contribute to long-term diesel price increases.
Crude Oil Supply Comes Offline
The Organization of Petroleum Exporting Countries and its
allies  (OPEC+) agreed on record-high production cuts earlier
this year that began to chip away at the world’s drastic oil
supply glut in May. The alliance’s oil-dependent economies
are now contributing to a cut quota of 9.6 million barrels per
day through July, before the quota incrementally decreases,
assuming prices respond accordingly.
Meanwhile, other major oil producers—like the United States
—have also scaled down operations in an attempt to lift prices
to more economically viable levels. U.S. crude oil production
has already decreased by over 15 percent since reaching record
highs in February. The International Energy Agency estimates
over 12 million barrels of crude oil were removed from the
market per day in May as voluntary and involuntary
production changes came to fruition.
The U.S. can be thought of as a microcosm for similar
strategies being executed internationally. Many nations cannot
break even or balance their budgets when oil prices are at or
below current levels. This has resulted in more aggressive
production restraints that mitigate some financial headwinds
and will progressively restore market balance.
The energy landscape is currently experiencing a game of
“survival of the fittest.” Many oil-rich regions have also been
forced to shut in production wells or even close down entirely.
In the U.S., for example, refiners were recently operating at
their lowest rates since the Great Recession. This puts the
longer-term supply picture in question as some key players
will be unable to simply flip a switch when called upon to
push product to market.
Demand for Transport Fuels and Other Crude Oil Refined
Products Returns

COVID-19 remains the biggest wild card for the international

energy market’s demand picture moving forward. As it
currently stands, many major economies are proceeding with
the removal of virus lockdown measures and are restarting
their economic engines to some extent. The relaxation of virus
containment efforts and stay-at-home orders means consumers
are returning to the roads and the need for many transportation
fuels—like gasoline and diesel—suddenly re-emerges.
The virus will continue to act as a demand shock through the
summer, with uncertainty about COVID-19’s lifespan and
measures taken to fully contain it still lingers. Fears of a
second wave of COVID-19 cases and lockdown requirements
could materialize, but demand will eventually return to a more
normal state. Timing, however, is difficult to gauge.
This will undoubtedly test the global supply-demand picture
and put world supply under a microscope as the risk of a
market in shortage could intensify. The International Energy
Agency recently reported fuel demand in 2021 will bounce
back, but finish 2.5 percent below pre-virus levels, reinforcing
the magnitude of COVID-19’s demand destruction.
Four Factors That Determine The Mix of Crude Oil
Refined Products

Each refinery has some degree of control over the mix of

products they produce based on these key factors: 
Type of Crude Oil (Crude Slate)
Refinery Capabilities
Market Demand for Product
Variance by Geography
Let’s dive into how each of these factors affects crude oil
outputs and their associated prices.
1. Type of Crude Oil

While valuable in their own respect, not all types of crude oil
are created equal. Two main subcategories of crude oil exist:
light or sweet vs. sour or heavy. An economy’s crude oil
refining process will be largely dependent on what kind of
crude oil they have available.
Light or sweet crude oil contains far less sulfur than its
counterpart, making it easier to manufacture during the
refining process. It is known for its quality and is scarce in the
marketplace, trading at a premium. Light or sweet crude oil is
commonly used to produce large amounts of and ultra-low
sulfur gasoline or ultra-low sulfur diesel (ULSD).
Conversely, heavy or sour crude contains higher levels of
sulfur. Because it is a “dirtier” type of crude, it is more
expensive to refine and requires more specialized equipment.
Complex refineries prefer to use heavy or sour crude for the
diesel refining process because it leaves room for better
margins. This is creating new challenges for refiners amid a
changing regulatory landscape.
2. Refinery Capabilities

The degree to which a refinery can produce each fuel type is

dependent on each facility’s capabilities. The type of crude oil
available influences what refined products are more
economically viable for the refinery to produce, but the
refinery operations will ultimately make it possible.
Cleaner burning fuels like Ultra-Low Sulfur Diesel (ULSD) or
gasoline require more complex operations, whereas “dirty”
fuel types do not. As the global crude oil landscape shifts
toward cleaner-burning fuels, refineries are pressed to continue
to update and innovate within their infrastructure to keep pace.
Investment in technology not only contributes to the type of
refined product output, but it also can increase efficiency.
3. Market Demand for Product

Gasoline and ultra-low sulfur diesel comprise approximately

70 percent of a typical barrel of refined product outputs. For
these fuel types, the role of demand and consumer sentiment is
heightened, because they tend to be consumer-focused
products. This can motivate the mix of a refiner’s slate of
finished products depending on its market.
For example, the U.S. refining infrastructure is tailored to
produce predominantly gasoline for its highly passenger-
vehicle-dependent landscape. In markets with less demand for
gasoline, operations would likely trend more towards uses that
benefit its specific economic needs—like marine fuels in port
cities.
Throughout 2020, unprecedented disruptions have emerged
surrounding the COVID-19 pandemic and the Organization of
the Petroleum Exporting Countries (OPEC+) behavior that
dramatically influenced crude oil prices, and thus, the refining
landscape. For refiners, a market this over-supplied will likely
motivate adaptations to capacity, operations, and refined
outputs as the market slowly return to normal. 
4. Variance by Geography

Across the globe, the composition of a barrel of refined

products varies based on the above criteria—the type of crude
extracted or imported, refining capabilities, and shifting
market demand.
Each nation’s product disposition varies greatly, further
revealing the uniqueness of each refining region and the price
implications that exist.
Understanding refinery operations to understand your
transportation budget

Every market for both crude oil and its refined products has
unique conditions that influence crude oil prices, diesel prices,
gasoline prices, and other products. For transportation
managers looking to understand and get ahead of their fuel
budgets—for both over-the-road and for marine—identifying
the factors that influence fuel prices enables more transparent
and proactive budgeting. It also enables your organization to
make informed decisions through times of uncertainty. 
OPEC’S History of Price Control
The purpose of OPEC is to unify producing member policies
to ensure “the stabilization of oil markets in order to secure an
efficient, economic and regular supply of petroleum to
consumers, a steady income to producers and a fair return on
capital for those investing in the petroleum
industry” according to their mission. Ultimately, the group
controls prices by forcing the market with economic
fundamentals to secure economic and political gain.
Since its inception, OPEC has been the single largest player in
the global crude oil production equation holding roughly 30
percent of the market share. Historically, when other much
smaller players deviated production from the plan, the impact
was muted, and markets continued to behave in close
alignment to expectations. Overarchingly OPEC decisions
have played a nearly independent role in driving not only the
cost of crude oil and its refined products – particularly diesel
and gasoline. This makes it imperative for shippers and
transportation professionals tasked with managing budgets to
pay attention to OPEC dynamics.
While OPEC controls oil prices as the single, consolidated
source of organized players, they are now one among several
other large and emerging producers that dilute their ability to
move the market in a silo. Increases in U.S. and Russian crude
oil production have begun to offset cuts and decisions made by
OPEC. As the global crude oil landscape becomes more
fragmented and diversified, the process of controlling prices is
becoming more complex.
With this more diluted distribution of power taking center
stage, OPEC’s thirteen member countries have added a “Plus”
contingent of countries to their cause (OPEC+). The “Plus” is
made up of ten additional countries that agree to help balance
the market but are not required to operate under full
membership terms. This addition illustrates OPEC’s need to
reclaim market share by having more allies join its forces to
support their ability to control prices.
International Oil Market Share is Evolving

U.S. energy abundance from quickly growing domestic

production has positioned them as a prominent player in the
crude oil landscape. As such, the political and strategic
decisions made by the U.S. create far-reaching shockwaves in
crude oil dynamics. This market presence can sometimes
overshadow OPEC’s decisions because they are no longer the
only large player. In some cases, OPEC appears to respond to
U.S. production news, rather than driving their own narrative.
Additionally, increased U.S. foreign policy—like Iranian
sanctions and policy related to Venezuela—is starting to
naturally cut production for OPEC. Deficits coming from Iran
and Venezuela and rising tensions among member countries
suppress the supply side of the equation, which eliminates the
need for OPEC to force cuts among their remaining members.
Why is it Important for Shippers to Pay Attention to
OPEC Meetings?

Collectively OPEC+ produces over 40 percent of the world’s

crude oil, so any decisions made by these exporters continue to
impact global commodities and equities markets. Saudi Arabia
and Russia anchor this group, accounting for just under half of
OPEC+ production. The swift pace of US oil production
growth has represented the most significant challenge to
OPEC+ agreements. Source: International Energy Agency, US
Energy Information Administration
To determine the optimal amount of production needed to
control prices, OPEC+ evaluates the current state of global
crude oil supply and demand to predict how that balance will
fluctuate in the future based on how they expect market events
will unfold. Disruptions to crude oil infrastructure, crude oil
transportation, foreign relations, and changing policy could all
impact the decisions of the organization.
For shippers, these production decisions and market
disruptions ultimately have an impact on the price of diesel
and other refined products that contribute to their bottom-line
transportation spend.
So far in 2020, the energy market has been faced with major
disruptions, both on the supply side and demand side of the
equation.  The COVID-19 pandemic has led to demand
destruction for crude oil and refined products.  
At the same time, the collective OPEC+ group could not agree
on a new production cut amid dropping demand.  This led to
Saudi Arabia opening up a price war with Russia in a fight for
market share.  All OPEC+ countries were allowed to produce
as much as they wanted, which flooded the market with oil
and, in concert with COVID-19’s demand destruction, caused
West Texas Intermediate (WTI) prices to go negative. 
The price war was short-lived when the cartel eventually came
together again in April to agree on a deal that ended with the
largest production cut in the history of OPEC.  The group
managed to agree to reduce crude oil production by 9.7 million
barrels per day (mmbd) for May and June 2020.  The cut quota
will then reduce throughout the next two years.
The OPEC+ group also met on June 10 to discuss the output
cuts as COVID-19 continues to disrupt the global economy
and crude oil prices remain low.  The meeting identified which
OPEC+ members were not meeting their quota.  
Ultimately, the group decided to extend the current production
cut of 9.7 mmbd through July.  Additionally, member
countries that did not meet its quota in May – like Iraq and
Nigeria – will be required to cut further to make up for the
noncompliance.  This has brought upward price pressure on
crude oil prices and therefore diesel prices as a result.  
Looking to the Future of Crude Oil Price Dynamics

Despite this natural balancing act caused by U.S. foreign

policy, the landscape remains volatile, and predicting the next
moves is becoming increasingly difficult. Because of this
uncertainty, countries, and companies are less likely to make
significant investments in infrastructure, manufacturing, and
trade, which dampens economic outlook and ultimately
weakens demand.
All these stipulations do not negate the relevance and power of
OPEC+ in terms of driving global prices, but they do change
the conditions under which they operate. They are no longer
the market-driving force they once were, and now must be
reactive as the U.S. claims greater market share.