Oversupplied Crude Oil Market and COVID-19 Pandemic Travel Restrictions Lead to Sharp Decline in Cost of Fuel
Motus today released its 2020 Summer Fuel Outlook Report. This report highlights key data related to fuel price fluctuations with a look towards how these changes will impact the summer driving season. The report reveals an oversupplied crude oil market, coupled with the COVID-19 pandemic, has led to an expected 6.5% decrease in global oil consumption in 2020. As a result, Motus anticipates national fuel prices to decrease by 35% on average compared to the past four years.
The report provides additional insight into previous fuel trends and how the extenuating circumstances have disrupted conventional price cycles. For example, fuel prices traditionally experience a seasonal increase during the second quarter and level off in the third quarter as refineries boost spring production to build up stocks of fuel to meet the higher demands of the summer driving season. However, current supply and demand irregularities accelerated by nationwide stay-at-home orders have led some states to experience the lowest pump prices they’ve seen in nearly two decades. Globally, oil consumption in 2020 is expected to decrease by 6.5% from 2019 levels.
“The price of fuel this summer will be very different from what we’ve seen in recent years due to decreases in both oil prices and travel activity. While fuel consumption and demand will increase as the country reopens and people resume travel, it’s unlikely we’ll see the same mileage levels as past summers,” said Ken Robinson, market research analyst for Motus. “If travel rebounds quickly, we expect the national average fuel price to range between $1.71 and $1.95 for the summer driving season. If travel activity resumes slowly, we anticipate a price range of $1.61 to $1.84.”
Efforts to re-balance oil markets are already underway. OPEC+, the U.S. and several other countries have taken steps to decrease oil production to help slow the supply surplus. Producers with higher costs are also expected to operate at lower production levels due to the impact of lower prices. The goal of these combined efforts is to create a deficit over the second half of 2020 to consume the surplus and rebalance the market by early 2021.
Additional findings in the 2020 Summer Fuel Outlook Report include: • A surge in oil production from OPEC+ and unexpected demand destruction in early 2020 have led to one of the fastest increases in global petroleum inventories since the 1990s and the largest year-over-year consumption decrease since 1980. • By mid-April, the number of active oil rigs in the U.S. was 52% lower than the previous year due to higher costs of operation and lower demand levels. • 40-55% of the U.S. workforce shifted to remote work during the pandemic, up from 4% before the pandemic. Meanwhile, 30-40% of the U.S. workforce is expected to remain remote postpandemic, impacting long term fuel consumption levels. • Fuel can make up as much as 23% of driving costs.
To access the full report, please visit: https://resources.motus.com/reports/2020-summer-fuel-outlookreport