Oil Demand Is Making a Comeback

More vehicle traffic increases the need for fuel.

May 21, 2020

ALEXANDRIA, Va.—Oil prices are making a comeback after last month’s collapse, thanks to record supply cuts and increased global fuel demand, two things that many investors hope herald a swift economic recovery, reports the Wall Street Journal.

Oil prices are still below levels at which most producers can make a profit, and companies from Exxon Mobil to EOG Resources are curtailing output. But rising factory activity in China is boosting fuel consumption, while economic growth in what is the world’s largest consumer of raw materials returns to normal. Demand for gasoline is also increasing in parts of the U.S. and Europe.

As NACS Daily reported last week, the coronavirus pandemic continued to affect U.S. fuel demand in April, but as communities reopen around the world, some investors predict a long-term increase in oil prices. Oil tends to rally when more people are traveling, factories are operating, and ships are transporting goods around the globe.

“As we see transportation demand recover and the globe reopening, that will help the oil price gradually grind higher,” Rob Thummel, a senior portfolio manager at the investment firm Tortoise, told the Journal. “We’ve still got a long way to go.”

As of Tuesday, the most heavily traded U.S. crude-oil futures contracts had risen to $31.96 a barrel. Prices started the year above $60 and then hit a low of $11.57 last month. Brent crude futures, the global gauge of oil prices, have rebounded to $34.65.

Another positive sign is the movement by consumers worldwide. U.S. motor gasoline supplied by energy companies, a proxy for demand from drivers, rose nearly 40% in the three-week period ended May 8, according to government data. Demand for distillate fuel, including the diesel commonly used by trucks, trains and boats, is also increasing, though jet-fuel consumption remains weak. Real-time gasoline demand indicators, such as daily requests for driving directions on the Apple Maps app, also show a recent surge.