Oil Stays Strong As Traders Cheer The Recent Rebound Of Gasoline Demand

Oil Video 24.09.20.

Gasoline Demand Rebounds, Providing Support To Oil Prices

WTI oil continues to trade near the $40 level despite the ongoing sell-off in the world markets.

There are several reasons for this strength. First, the recent EIA Weekly Petroleum Status Report indicated that crude inventories decreased by 1.6 million barrels while gasoline inventories fell by 4 million barrels.

Second, EIA reported that gasoline demand continued to increase. In the week ending September 4, 2020, gasoline demand was 8.39 million barrels per day (bpd). Next week, it increased to 8.48 million bpd. The latest data for the week ending September 18, 2020 indicated that gasoline demand increased to 8.52 million bpd.

Previously, traders feared that the continued problems on the coronavirus front and the end of the driving season will put material pressure on gasoline demand.

The recent reports indicate that gasoline demand is showing some strength. It is still well below 9.35 million bpd, a level reached a year ago, but the current trend is positive.

At this point, the optimism about the rebound of gasoline demand was sufficient enough to offset worries about the second wave of the virus in Europe and the negative impact of the stronger U.S. dollar.

However, it remains to be seen whether this optimism will be long-lived as the U.S. domestic oil production will soon recover from the hits dealt by storms and hurricanes so inventories may start to increase again.

California Decided To Ban Gasoline Cars By 2035

The sale of gasoline cars will end in California by 2035 to combat pollution and deal with the climate change. The average age of the car on the U.S. road is almost 12 years so gasoline cars will certainly not disappear in California anytime soon even if the state bans their sale in 2035.

That said, the currents trends are somewhat worrisome for the oil market in the long term as most developed countries are discussing a ban on gasoline cars sometime in the future.

While there’ll be no immediate consequences for the supply/demand balance even if all countries in the world signed a pledge to ban the sale of gasoline cars in 2035, the constant talk about the ban may ultimately impact investors’ desire to invest in oil and oil-related securities.

However, this is the oil market, and the situation can change very fast. If the world oil companies continue to underinvest in new projects, the world may ultimately face a shortage of oil which will lead to much higher prices.

For a look at all of today’s economic events, check out our economic calendar.