Oil has risen nearly 70% since the election, a record in the modern era

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This is by far the biggest post-election gain at this point in the presidential cycle since NYMEX oil futures began trading in 1983, according to a CNN Business analysis. The next closest post-election rally was when crude jumped 31% after President George HW Bush won in 1988.

Gasoline prices are also on the rise, climbing 27% since the election, with the national average hitting $ 2.70 per gallon this week, according to AAA.
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“The rise in oil prices is a reflection of optimism about economic growth as the world begins the vaccination process to overcome the pandemic,” said Jason Bordoff, founding director of the Center on Global Energy Policy. Columbia University.

In recent months, the United States has made major strides in defeating Covid. Both Pfizer (PFE) and Modern (RNAm) rolled out highly effective vaccines at the end of last year, and after a slow start, implementation has accelerated. The country could be days away from access to the first single-injection vaccine.

And as more Americans get vaccinated, they can catch flights, take road trips and cruises – which in turn will increase the demand for oil crushed by the health crisis. Bank of America predicts that it will grow through 2023 at the fastest rate since the 1970s.

The pandemic, combined with a nasty price war between Saudi Arabia and Russia, caused the oil market’s darkest day last April. Crude crashed below zero, briefly touching $ 37 a barrel.

The GameStop factor

But just as this sale has been exaggerated, some fear the price sling will get out of hand.

“It looks a lot more like a financial rally than a fundamental rally,” said Jim Mitchell, head of petroleum analysts for the Americas at Refinitiv. He estimated that oil prices in the United States are $ 7 to $ 8 higher than what supply-demand dynamics suggest they should be.

Consider that the demand for gasoline in the United States – the main driver of oil prices – has not been so weak in February since 1997.

So why is oil beating fundamentals? Easy Money on Wall Street is looking for a house. The Fed’s lowest interest rates encourage investors to bet on risky assets. All of Amazon (AMZN) and GameStop to Bitcoin and SPACs are on fire. It makes sense for oil to join the party – especially since crude is a way to bet on higher inflation.
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“We’re riding the money flow. But if the money keeps pouring in, it becomes a bit like GameStop,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service.

In other words, the gains can be unsustainable.

For now, Wall Street analysts are betting the rally is just beginning. Goldman Sachs now says US oil prices will average $ 72 per barrel in the third quarter, up from $ 62 previously. Some investment banks are even calling for a new “supercycle” that could raise oil to $ 100.

“It’s very, very premature. It’s like when someone wins a sports championship and immediately starts talking about dynasty,” Kloza said.

The risk of gasoline at $ 3

The risk is that energy prices will reach levels that slow the recovery by increasing uncomfortably high costs for drivers.

“Gasoline at $ 3 a gallon is a number that gets public attention, like 100 baseball wins,” Kloza said.

While Kloza doesn’t think the national average will hit $ 3 a gallon this year, he warned that if she did, it would result in “irresponsible blame” on the White House and oil producers.

Others doubt that rising energy prices will prevent tired Americans from quarantining roads and planes this summer.

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“If you’re stuck at home for a year, you’re probably going to go on vacation, whether oil is $ 40 or $ 90,” said Ryan Fitzmaurice, energy strategist at Rabobank.

Either way, today’s digital economy (less manufacturing, more electric vehicles and telecommuting) could support higher prices than in the past.

“The economy will be far less sensitive to fluctuations in the price of oil than it was during our lifetime, “said Joe Brusuelas, chief economist of RSM International.” Many of us are still trapped in the oil shock of the 1970s. we are several economies away. “

OPEC, which was responsible for the shock of the 1970s, may soon add more barrels to the world market. The group, along with Russia, could decide next week to ease production limits from April. It could cool the hot market.

The last oil dance?

The stream The oil rally comes at a time when energy policy in Washington is getting a facelift after four years of a fossil-fuel-friendly Trump administration.

President Joe Biden has reacted swiftly to tackle the climate crisis by reintegrating the United States into the Paris Agreement, revoking the Keystone XL pipeline license and ordering a moratorium on new oil and gas leases on land and federal waters. These steps amount to a shot at the bow of the oil industry and could potentially depress fossil fuel production in the United States.
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However, analysts doubt that the current rally is directly linked to the administration’s oil crackdown. Crude has risen a more modest 20% since Trump’s last day in office.

“Biden’s climate policy has nothing to do with the current rise in oil prices,” said Bordoff, the Columbia professor who served as an energy adviser under the Obama administration.

But the climate crisis and electric vehicles remain real threats to oil.

In a report titled “The Last Oil Dance,” Bank of America recently predicted that sales of electric vehicles will reach 34% of total car sales by 2030 and exceed sales of gas-guzzling vehicles by 2035. The bank expects global oil demand to peak around 2030.

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