Oil and barge demand

Major waterways that have seen significant increases in crude-by-barge traffic include the Mississippi River and its tributaries, particularly the Ohio River and the Gulf Intracoastal Waterway. The trend continues, but there are ominous storm clouds on the horizon due to low oil prices.

In his Aug. 24 Petrodollars column in Oilgram News, Joshua Mann put this in perspective. He mentioned that Kirby Corp.CEO David Grzebinski noted in July 2014 that “the waterborne transportation markets have strong fundamentals, and a good long-term outlook, with inland contract pricing on the rise.” At the same time, expanding production drove increases in crude transport by rail also as the oil and gas industry awaited the creation of a pipeline infrastructure to ship oil and gas out of the shale plays. It looked promising for a while.

Two things have dampened the picture for barge transport of crude. The first is the rapid progress in the construction of an off-take pipeline system in the shales, resulting in some “200 inland barges in the U.S. switched to other services, leaving about 350 still carrying crude,” Grzebinski estimated. The second is the depressed price of oil, which has left the industry very cautious.

While the spot price for barges is still increasing, with utilization at 90%, contract prices are falling in the wake of $40 oil and the prospect that oil prices have not hit bottom yet and are unlikely to recover before 2017. 

This destroys confidence.

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