WIKIFX REPORT: Is Oil a Solid Play for this Summer?

Crude oil could be in for a wild ride this summer.

Oil prices Brent and WTI are well into the triple digits. That is clearly the biggest story of the week, but its important to put these high prices into the appropriate historical context. The economic recovery is currently underway in the United States, China, and parts of Europe following a year of shutdowns and pandemic measures.

As such, the demand for crude oil is expected to rise in the worlds advanced economies, aided by rising travel frequency and other factors.

However, crude prices are certainly at the crossroads given a wide range of initiatives kicked off the United States and elsewhere.

This includes a renewed push for renewables and green technology such as electric vehicles (EV), ramped up production, as well as a complicated OPEC relationship.

Summer Travel Could be Back

Summer is likely the best tike to travel, Most people are ready to travel again as countries re open and individuals are tired of being at home. This is a particular trend in the United States, which could see a massive groundswell of travel by summer 2021. The US in particular is more reliant on automobiles and thus the driving season is expected to help create a surge in demand for crude.

According to the US Energy Information Administrations (EIA) Short-Term Energy Outlook, US highway travel is expected to rise by 15% this summer. This could also lead to an increase in gasoline prices, having bottomed out last year.

Due to large and general increase in consumer confidence, increasingly vaccinated public, and improved weather are all likely factors that could help drive crude prices in the US. However, this is hardly a US-only trend, and is likely to be seen across other developed economies.

Global Commitment to Green Technology and Energy

Climate change has quickly captured the attention of many of the world‘s leading economies, including the US and Europe. Most agree that drastic measures are needed to curb fossil fuel consumption, which obviously is a deterrent to higher crude prices moving forward. This trend was laid bare during the rollout of President Joe Biden’s $2 trillion infrastructure bill, which involves a heavy focus towards renewables in a bid to reduce emissions.

After years of marketing and development, consumers globally have finally warmed to electric cars in larger numbers. Such a push is a net negative for crude prices as this push is largest in the US and China, two countries which account for over a third of the globes carbon emissions.

Both countries are progressing with reducing an emphasis on fossil fuels in favor of green energy sources. Whether or not this actually comes to fruition is another matter, though markets will certainly react to any developments.