It is easily the biggest gain after the election by this point in the presidential cycle since NYMEX began trading oil futures in 1983, according to a CNN Business analysis. The next post-election rally took place when crude oil jumped 31% after President George HW Bush’s 1988 victory.
“Higher oil prices are a reflection of optimism about economic growth as the world begins the vaccination process to move past the pandemic,” said Jason Bordoff, founder of Columbia University’s Center for Global Energy Policy.
And as more Americans are vaccinated, they can fly again, on road trips and voyages – which in turn will increase the demand for oil shattered by the health crisis. Bank of America predicts that by 2023 it will grow at the fastest rate since the 1970s.
The GameStop Factor
But just as its sales have been exceeded, some fear that the price tag may get out of hand.
“It looks a lot more like a financial rally than a fundamental one,” said Jim Mitchell, chief of U.S. oil analysts at Refinitiv. He estimated that US oil prices are $ 7 to $ 8 higher than where the demand for dynamics suggests it should be.
Keep in mind that US demand for gasoline – the biggest driver of oil prices – has not been so weak since 1997.
“We’re driving the cash flow higher. But if the money keeps pouring in, it’s a bit like GameStop,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service.
In other words, profits can be unsustainable.
“It’s very, very premature. It’s like when someone wins a championship in sport and they immediately start talking to a dynasty,” Kloza said.
The risk of $ 3 gasoline
The risk is that energy prices will rise to levels that delay recovery by increasing costs for drivers uncomfortably.
“Petrol is a number that attracts the attention of the public, like 100 wins in baseball,” Kloza said.
Although Kloza does not think the national average will fetch $ 3 per liter this year, he warned that it would cause ‘irresponsible debt’ against the White House and oil producers.
Others are skeptical that higher energy prices will keep Americans who quarantine tired this summer off the roads and planes.
“If you stay home for a year, you’ll probably go on that holiday, whether oil is $ 40 or $ 90,” said Ryan Fitzmaurice, Rabobank’s energy strategist.
In any case, today’s digital economy (less manufacturing, more electric vehicles and remote work) can withstand higher prices than in the past.
‘The economy will be far less sensitive to oil price movements than it was in our lifetime, “said Joe Brusuelas, chief economist at RSM International.” Many of us are still prisoners of the oil price shock of the 1970s. But we are different economies since then. ‘
Oil’s last dance?
The current oil rally comes at a time when energy policy in Washington is undergoing a major overhaul after four years of the Trump administration using fossil fuels.
However, analysts are skeptical that the current protest is directly related to the government’s oil spill. Ru is a modest 20% higher than Trump’s last day in office.
“Biden’s climate policy has nothing to do with the current rise in oil prices,” said Bordoff, a professor in Columbia who served as an energy adviser during the Obama administration.
But the climate crisis and electric vehicles remain real threats to oil.
In a report entitled ‘Oil’s Last Dance’, Bank of America recently predicted that EV sales would reach 34% of total car sales by 2030 and surpass gas sales vehicles by 2035. The bank expects global oil demand to reach around 2030.