$140 a Barrel of Crude Oil? Not as Crazy as You Think

What Will Happen When 200 Million People All Go on a Trip in the Coming Months?

Oil and gas consumption would go through the roof. Due to the lack of lasting and relieving factors, analysts at Goldman Sachs anticipated crude oil rising to $140 a barrel in the third quarter. Since Crude Oil WTI Futures managed to jump from around $70 to over $120 in the course of six months, $140 would not be an outlandish prediction.

In the short term, crude oil prices are unlikely to decline through diversifying supply sources or boosting production, with the US driving season underway, it is expected oil and gas prices will receive yet another tailwind.

US Summer Driving Season and Impact on Oil Prices

The summer driving season in the US starts from 30 May (Memorial Day) to 5 September (Labor Day), as many Americans go on summer car trips, gasoline and crude oil consumption would increase steadily over the period.

US driving season is not to be underestimated. In 2021, the US consumed 8.80 million barrels of gasoline on a daily average; During the Memorial Day weekend, the figure went up to 9.2 million barrels.

According to the Energy Information Administration, every barrel of crude oil (42 gallons) can produce 19 to 20 gallons of motor gasoline. Hence, the 400,000 gasoline barrels difference is translated to roughly 800,000 more barrels of crude oil to meet US driving season demands.

Moreover, gasoline used in the summer requires special blends to reduce ozone and smog-forming toxins, the extra procedures in turn drive up pump prices even further.

The only upside is slightly more energy efficient than winter gasoline, by around 1.7%.

As of 14 June 2022, the US national average price for regular gasoline is $5.016 per gallon, a 60% bump from $3.080 in 2021. In states like California, regular gasoline now costs $6.438, where diesel almost asks for $7 a gallon.

The American Automobile Association (AAA) predicted 39.2 million Americans traveled during the Memorial Day weekend, with 34.9 million people choosing automobiles as their means of transport. Comparing the two figures last year, they have a projected growth of 8.3% and 4.6% respectively, though still lower than pre-pandemic levels.

But this is not the end of the wave of travelers, the pent-up demand for vacation is about to be released when US travel restrictions are mostly lifted. In a survey conducted by the Vacationer, over 80% of the 1,030 adult participants plan to travel this summer, and 44.8% had more than one trip planned ahead.

Crude Oil WTI Futures basically share the same seasonal patterns with gasoline prices, thus the US driving season would also contribute to the already soaring oil prices. If the supply side shocks could not have a timely response, the question had to be asked: Can the oil bulls be stopped from the demand side?

Electric and hybrid vehicles have enjoyed a steady growth in sales, but they only take up a quarter of the US automobile market. High retail prices and the shortage of charging stations for electric vehicles (EV) dissuaded potential car owners with limited income or living in rural areas. In addition, a recent shortage in semiconductors has hindered EV production and increased costs.

Drastically changing consumption patterns and preferences would be an arduous task, most people have been deprived of the chance for travel since the beginning of the pandemic. Recalling the results from the Vacationer survey, many Americans are willing to overlook the transportation costs in exchange for a breath of fresh air, leaving rational thinking for daily commute and grocery runs.

Bottom Line

To sum up, Americans are dead set on traveling this summer, oil and gasoline prices would maintain their upward trajectories in the coming months. Electric and hybrid vehicles are yet to effectively replace traditional ones, in order to alleviate the demand for gasoline. But remember, don’t leave summer gasoline blends with ethanol in your car unattended for weeks, they can break down the engine. Check the latest crude oil price here.

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