Fracking jobs peaked in June; so did flatbed rates

On Monday, the energy data and consulting firm Rystad Energy released a report showing that daily fracking jobs for trucks reached a peak of 48-50 in May and June of 2018 before gradually declining to about 44 jobs per day in November. Because fracking is so trucking-intensive – the sand, water, and chemicals must be transported to a large number of shifting production sites – FreightWaves wanted to see if the same curve was present in flatbed trucking prices and tender rejections.

Flatbed rates and and capacity tightness in oil patch-associated lanes tracked the story Rystad was telling fairly closely.

“After reaching a peak in May/June, fracking activity in the Permian Basin has gradually decelerated throughout the second half of 2018,” stated Rystad Energy senior analyst Lai Lou in a press release.

According to DAT’s RateView tool, broker-to-carrier spot rates for flatbed trucks experienced a similar deterioration after peaking in June or July. Flatbed trucks driving from Houston to Lubbock were taking $2.35/mile net of fuel in February, but that rate spiked to $2.91/mile in June before falling to $2.14/mile in November. The Houston to Oklahoma City lane was more volatile at $2.20/mile in February, peaking at $3.08/mile in July, before crashing to $2.03/mile in November.

From Birmingham, Alabama, where major flatbed carriers are based, to Houston, flatbed rates started at $2.07/mile net of fuel in February, peaked at $2.84/mile in June, and fell to $1.85/mile over the past seven days. Finally, the Shreveport, Louisiana to Oklahoma City lane, which connects the Haynesville shale play with the SCOOP/STACK play, paid flatbeds $2.55/mile in February, $3.10/mile in June, and only $1.97/mile over the past seven days.

It’s worth noting that oil patch flatbed prices tracked the national rate to a certain extent, which bottomed in February at $2.00/mile, peaked at $2.42/mile in June, and fell to $2.01/mile in November. But the oilfield lanes are priced at a premium compared to national averages and are far more volatile – much more of a boom-and-bust environment.

“In 2018, there was a flatbed market I’ve never seen before. No matter how long you’ve been in the game, the market will gut-check you and teach you something,” said Asa Shirley, Senior Vice President of Sales at Arrive Logistics. Shirley said that $4/mile rates for 1,200 mile long hauls shocked him, as did the magnitude of the market’s peak.

“With the nature of [the oil and gas] business, they need to move large pieces of equipment quickly, with not a lot of lead time,” Shirley said. He went on to say that oilfield drivers are closely connected to oil and gas operators and have a good sense of industry trends – the rush of flatbed capacity in and out of the industry mirrors, to some extent, the volatility of oil itself.

According to FreightWaves’ SONAR freight market data platform, as fracking activity stabilized and then gradually subsided, capacity in affected markets loosened up and tender rejections plunged. The chart below shows tender rejections falling after a peak in late June on the following lanes: Houston to Lubbock (white line); Shreveport to Oklahoma City (green line); Birmingham to Houston (orange line).

The Dallas Fed’s Energy Survey, released January 3, confirmed that in the fourth quarter of 2018 growth in energy sector activity slowed significantly, plunging from 43.2 in the third quarter to 2.3 in the fourth quarter. In the business activity survey, positive readings indicate expansion and negative readings indicate contraction. Therefore, in the fourth quarter, energy sector activity growth was barely perceptible compared to third quarter levels.

Although oil and gas production increased for the ninth consecutive quarter, strikingly “the index for utilization of equipment by oilfield services firms dropped sharply in the fourth quarter, with the corresponding index at 1.6, down 43 points from the third quarter,” the Dallas Fed reported.

Most importantly, 53 percent of survey respondents said that they would either significantly or slightly lower 2019 capital expenditure in response to lower oil prices. According to Oilprice.com, the price of West Texas Intermediate (WTI), the American crude oil benchmark, fell 44 percent from $76.41/barrel on October 3 to $42.53/barrel on December 25. This morning, WTI broke above $50/barrel.

Both encouraging macroeconomic numbers like a strong American jobs report and global supply issues – Saudi Arabia’s keen embrace of OPEC cuts and more – have helped oil recover some of its losses. At this price point, close to $50/barrel, the vast majority of shale producers are in the money. Significantly, the Brent-WTI spread, which tracks the discount American oil enjoys on global markets compared with Brent (the North Sea-based international benchmark), has widened to more than $9/barrel today.

As long as WTI continues its recovery and traders maintain a healthy Brent-WTI spread, the economics will spur further American oil exploration and production. Forty-five percent of the respondents to the Dallas Fed Survey said that growing production was their top priority in 2019, a bullish sentiment for flatbed demand next year.