The oil market is wrapped in unknowns, and American consumers are feeling the pain of higher prices for gasoline and heating oil. In The Wall Street Journal, Scott Patterson discusses what could happen in the days to come as high gas prices affect the economy. He writes:
Analysts were split on whether gasoline prices could rise high enough to discourage Americans from road trips when the spring and summer traveling season begins. If fewer people venture out onto the highways due to nosebleed gasoline prices and belt-tightening, that could reduce demand, potentially easing pressure at the pump.
Michael Tran, managing director of global energy strategy at RBC Capital Markets, said that after two years of Covid-19 he expects consumers to hit the road even with high gasoline prices. The last time rising gasoline prices curbed demand was in 2008 amid a spike in oil during the financial crises, he said. Back then, gasoline rose to a record $4.11 a gallon, which equates to about $5.20 a barrel today adjusted for inflation, he said.
The average U.S. household has about $700 more in its bank account today than before Covid-19 struck, giving consumers more room to absorb higher costs despite the broader inflationary pressures, Mr. Tran said. “There’s still a lot of pent-up demand for driving for travel and just living again,” he said.
Surging gasoline prices, if they last, could help accelerate the shift away from internal combustion engines toward hybrid and electric vehicles. Lisa Longo, a self-employed business consultant in Phoenixville, Pa., said that because she drives a Toyota Prius, the recent spike “impacts me less than others.”
Alan Gelder, vice president of refining, chemicals and oil markets for Wood Mackenzie, said the current situation is simply too uncertain to know where the market will go in the coming days and weeks, or how consumers will respond.
The intangibles: The U.S.-Iran nuclear talks, if successful, could result in increased oil output from Iran; stranded Russian oil could make its way into India or China, easing supply constraints; Saudi Arabia, in response to the events in Ukraine, could move to sharply increase output.
“There will be lots of things that will be clearer when the dust settles,” Mr. Gelder said. “But for now the dust cloud is just getting bigger.”
Read more here.
