Americans eager to take a trip -- anywhere! Gas prices could soar
Americans are getting ready to rekindle their love affair with the open road, unleashing a full-fledged recovery for gasoline that could send demand to a record.
Traffic is already roaring back in cities like Houston as offices reopen. Things will really start taking off this summer as pent-up travel demand finally busts out thanks to the increase in vaccinations. After almost half of Americans ended up canceling trips in 2020, many are planning to take an extra week of vacation this year to make up for lost time. Theme parks are gearing up for an influx of visitors, and attendance at national parks is expected to swell.
Demand is predicted to be so hot that Phillips 66 is set to reverse the flow of one of its pipelines starting May 1 so it can carry gasoline from Texas into Denver as more tourists head west.
Charles Ocasek, a 24-year-old, is one of them. In late May, he's hitting the road for the first time since the pandemic started, driving his 2004 Nissan Pathfinder from the Chicago suburbs out to the Rocky Mountain resort town of Telluride, Colo., for a meet-up with friends. He's been living with his parents who are in their 60s, so the specter of getting and spreading Covid kept him from traveling until now. But by next month, he'll be fully vaccinated, and he's planning more trips for the summer.
"I'm tentatively planning on taking a month or a month-and-a-half and doing a multi-state road trip all over the country," Ocasek said.
The surge in consumption means gasoline is likely going to be even more expensive than the U.S. government is forecasting. The Energy Information Administration last week said average pump prices this summer will be more than 30% higher than last year at $2.78 a gallon. But many analysts are estimating prices will hit $3 a gallon for the first time since 2014.
Rising gasoline prices will be another marker of inflation that impacts Americans unevenly. Just like soaring food bills, more expensive fuel hits harder for lower-income families, with the costs making up a larger share of spending. That comes amid the unequal economic recovery, with the Black unemployment rate still trending high and lower labor-market participation among Americans without college educations.
Meanwhile, crude traders are widely anticipating a meaningful return of fuel demand in the world's largest oil consuming country to help drive the next leg higher in prices.
A big part of oil's rally so far this year has been on the supply side, with the OPEC+ alliance displaying strict output management and higher prices not yet drawing U.S. shale producers out in force. But crude has pulled back from multi-year highs in recent weeks, and will continue to face resistance until concerns over consumption start to fade.
"Prices are higher today than where they were pre-pandemic, despite demand not all the way back," said Peter McNally, global head for industrials, materials and energy at Third Bridge. "Vaccines are now being mass-distributed to the biggest consumers of energy, as we're getting to business travelers and family vacationers, which we haven't seen to date."
One of the most bullish predictions for fuel use comes from Mark Le Dain, vice president for strategy at refinery consultant and software company Validere, founded at Harvard. He says this summer will be the strongest one ever for gasoline demand, beating the previous all-time high set in 2019. He cited an increase in bookings for national and state parks and a shortage of rental-car availability along with the return to work from people who haven't gone back yet.
For a record 2021 to happen, Americans will have to add about 1 million barrels of gasoline consumption a day to levels as of March 26. The extra portion alone would be enough to fill 1.5 million empty F-150 Ford pickups.
Even so, "there are a lot of things aligning right now to show demand being strong," Le Dain said.
National retail prices for gasoline averaged $2.87 on Wednesday. As demand strengthens this summer, the price will hit at least $3, according to Patrick DeHaan, head of petroleum analysis at retail tracker GasBuddy, Robert Yawger, head of the futures division at Mizuho Securities and Trisha Curtis, chief executive officer at analysis firm PetroNerds in Denver.
"I'm not sure when it happens, but yes, it happens," Curtis said.
A surge in gasoline burning will also bring a jump for greenhouse gas emissions after declines in traffic congestion helped to clear the air last year.
It's not just road trips that will boost demand for fuels.
U.S. airlines are bringing back more pilots as they prepare for a travel rebound, and jet fuel consumption is on the rise. Still, that segment of the oil market has much further to climb before hitting pre-pandemic levels.
Outside of travel, another linchpin for the oil recovery will be how many people burn fuel to go back to work, and for how many days a week.
"There is a slow return back to offices for workers, but it takes time," said Jeff Lenard, vice president for strategic industry initiatives at the National Association of Convenience Stores.
One thing that could scuttle the recovery would be a spike in COVID-19 cases. The U.S. Centers for Disease Control and Prevention this month said that fully vaccinated people can resume recreational travel in the U.S. at "low risk," but CDC Director Rochelle Walensky has also warned of "impending doom" as cases begin to rise again.
Jennifer Fink, 54, and her husband, John, are looking forward to getting out of their home in the San Francisco Bay area for the first time since the pandemic started. They're planning a mid-summer road trip up through Oregon and Washington state to Tofino, British Columbia. But they're also keeping an eye on travel restrictions and canceled plans for trips last year when California was forced back into lockdown. Fink is more optimistic this time after getting her first dose of the vaccine. Her husband is already fully vaccinated.
"Maybe the fifth or sixth time is the charm, and we'll be able to go somewhere," she said.
Americans on average are planning to take 13 vacation days this year, up from just eight days in 2020, according to a study from travel giant Expedia Group. A study from AARP showed that just over half of baby boomers plan to travel in 2021, and nearly a quarter of those making plans didn't travel at all last year.
"What we're hearing more and more is that people are just desperate to go out and do the stuff that they were not able to do," Seema Shah, chief strategist at Principal Global Investors, said last month in an interview on Bloomberg Television. "There could be certainly some upside surprises to come."
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