How Thanksgiving Travel Affects Gasoline and Crude Oil Prices
Will Holiday Travel Boost the Gasoline and Crude Oil Markets?
Crude oil market and gasoline
The EIA (U.S. Energy Information Administration) reported that US gasoline demand hit its highest level in the last eight years in October 2015. Why? Record low gasoline prices. Gasoline prices are trading close to their 2009 level of $2.09 per gallon, as of November 23, 2015. This is 73 cents less than the price of gasoline in 2014 and the lowest price during Thanksgiving since 2008. Gasoline prices fell to record lows due to record low crude oil prices. Gasoline is the refined form of crude oil used as fuel in vehicles.
Will high gasoline demand continue?
The rise in gasoline demand is driven by the Thanksgiving holiday and lower gasoline prices. The EIA and the American Automobile Association estimate that 46.9 million people in the United States will travel more than 50 miles during the five-day period from November 25 through 29. Around 42 million will travel by car. This would be the highest figure since 2007.
Record travel would boost demand for gasoline in the short term, which would lead to a rise in prices. Retail gasoline prices rose more than 8% for the week ending November 25. Another factor for the increase in travel is the mild winter weather. Some travelers might fill their car tanks early in order to avoid the sudden spike in gasoline prices with holiday season demand. The surge in gasoline demand supports the demand for crude oil, which could benefit oil prices. However, demand might drop as the holiday season ends.
Gasoline price outlook
In its Short-Term Energy Outlook (STEO) in November, the EIA projected that US retail gasoline prices will average $2.06 per gallon in December 2015. The government agency also estimated that annual gasoline retail prices will average $2.43 per gallon in 2015 and $2.33 per gallon in 2016.
The rise in gasoline prices benefits US refiners such as Tesoro (TSO), Valero Energy Corporation (VLO), and Phillips 66 (PSX). Lower crude oil prices benefit these refiners but negatively affect oil producers such as Murphy Oil (MUR) and Noble Energy (NBL).
The rises and falls in oil and gas prices also affect ETFs such as the First Trust Energy AlphaDEX Fund (FXN) and the iShares US Oil Equipment & Services ETF (IEZ).
In the next part of this series, we’ll see how lower crude oil prices could impact oil reserves.
Browse this series on Market Realist:
