Rising Oil Production in the U.S. Impacts Trucking

The U.S. Oil Boom. We aren’t talking about the 19th century when railroads were creating new ways to transport goods and oil was discovered as an additional fuel option- but the current rising oil production in 2017.

It sounds a little strange, growth in the oil and gas industry in today’s economy, but it’s happening. The United States is pumping more oil than ever before according to oil industry service provider, Baker Hughes.

The resurgence of shale oil drilling in North America has helped keep gas and diesel prices low for the most part in 2017. Even though the Organization of the Petroleum Exporting Countries (OPEC) is experiencing oil production cuts, the United States is seeing more oil production than ever before, which is creating a unique situation for the trucking and logistics industries.

Rising Oil Production= More Hauls

Higher oil production means more trucks on the road hauling oil. Makes sense, but that’s not the only impact on the industry. Rising oil production also means the need for more drilling equipment, pipe, drill bits, chemicals, and other materials at all drilling sites, at all corners of the nation.

By the Numbers

In the last year, the number of Land Oil Rigs currently in use in the United States is up by 118 percent, (885 as compared to 479) in May 2016, according to Freight Waves.

The output of oil production in the United States has surged nine percent to above nine million barrels a day in the last eight months, according to CNBC.

Using a two-rig, eight-well land oil rig design as the base, it is estimated that every new land drilling rig adds over one million miles of truckload hauling. (See Freight Wave’s infographic here.)

The Future of U.S. Oil Drilling

Oil production in the United States is expected to keep growing to 10 million barrels a day by next year, shattering the previous record of 9.6 million barrels a day in 1970, according to CNBC.

The Energy Information Administration (EIA) suggests that U.S. drillers might have to live with a smaller profit margin next year, with the West Texas Intermediate Crude, the benchmark in pricing oil, trading at about $53.61 a barrel, down 2.7 percent from the forecast announced last month.

How is Oil and Oil Rig Equipment Transported?

If you’re not familiar with the oil industry, you may be unfamiliar with the methods (sometimes unique) used to transport oil and the materials needed for oil drilling.

Oil is typically transported one of four ways: pipelines, intermodal (rail), ocean, and truckload. These methods are used to transport the oil from the drilling sites to refineries, after which where the crude is refined into end-user products like gasoline, diesel fuel, and asphalt. It is then shipped to gas stations and other distributors and retailers for consumption.

Pipelines are one of the more common transport methods for oil since they require less energy and don’t create capacity issues over the road or rail. Intermodal oil shipments via the rail are also becoming more popular since rail is an environmentally-friendly alternative to truckload shipping and can carry more capacity.

There are challenges with truckload capacity in general, so it isn’t the most common mode when it comes to transporting oil. While pipelines and rail have mostly fixed destinations, trucks have more freedom. You’ll typically see trucks coming into play in the last portion of oil delivery – from the refineries to gas stations or storage locations.

Oil is also transported from more remote locations where pipelines or rail are not available. Typical barges can carry 30,000 barrels of oil and are a little more economical, where appropriate, versus rail.

Drilling equipment and pipe needed at Land-based Oil Rig sites will most likely be transported via flatbed, a truck with a flat area for carrying freight that can either be open or covered. See our flatbed anatomy blog with infographics here.

Capacity Challenges

According to Forbes, some of the 10-fastest growing industries in the U.S. include services to buildings and dwellings; building finishing contractors; residential building construction; foundation, structure, and building exterior contractors; building equipment contractors; nonresidential building construction; and other heavy and civil engineering construction. Basically, a lot of building materials (including those needed for oil drilling) are hitting the highways and bringing a need for truckload capacity in an already tough market.

Driver shortages due to increased volume and driver retirements, governmental regulations, and fleets choosing to scale back operations are all contributing factors to the capacity decline. Mix these issues with suppliers facing increased demand to get their products to land oil rigs and it’s the perfect equation for capacity challenges and potential rate hikes.

Future of the Oil Industry and Trucking

It’s no doubt to industry experts that oil production will break records in 2018, with projected growth of 7.5 percent. The supply is expected to outpace consumption, with the need to transport oil to storage facilities in high demand.

One of the factors to watch will be tighter capacity issues with the implementation of Electronic Logging Devices (ELDs) in December 2017.

As capacity tightens, having a proven, experienced Logistics partner will help keep oil producers and distributors product’s rolling- a Logistics company that can access the need and commodity, and select the best carrier in the most appropriate mode to move the petroleum products and equipment to its destination.